Reinventing Manufacturing How the Transformation of Manufacturing Is Creating New Opportunity for California

April 2016 Acknowledgments About the Institute The Bay Area Council Economic Institute thanks the Since 1990, the Bay Area Council Economic Institute has content contributors and generous funders of this been the leading think tank focused on the economic project: A.T. Kearney; General Electric; Autodesk, Inc.; and policy issues facing the San Francisco/Silicon Val- Lawrence Livermore National Laboratory; Lawrence ley Bay Area, one of the most dynamic regions in the Berkeley National Laboratory; Siemens TTB; Jabil; United States and the world’s leading center for tech- Wendel, Rosen, Black & Dean LLP; University of nology and innovation. A valued forum for stakeholder California Office of the President; PARC, a Xerox engagement and a respected source of information and company; and Jones Lang LaSalle. fact-based analysis, the Institute is a trusted partner and adviser to both business leaders and government of- ficials. Through its economic and policy research and its many partnerships, the Institute addresses major factors The Institute is particularly appreciative of the support of impacting the competitiveness, economic development A.T. Kearney, which led the research and drafting of the and quality of life of the region and the state, including Major Drivers of Change section. infrastructure, globalization, science and technology, and health policy. It is guided by a Board of Trustees This project had many substantive contributors from the drawn from influential leaders in the corporate, academ- Bay Area Council Economic Institute: ic, non-profit, and government sectors. The Institute is Tracey Grose, Vice President housed at and supported by the Bay Area Council, a public policy organization that includes hundreds of the Sean Randolph, Senior Director region’s largest employers and is committed to keeping Pam Winter, Senior Advisor the Bay Area the world’s most competitive economy and Jeff Bellisario, Research Manager best place to live. The Institute also supports and man- Patrick Kallerman, Research Manager ages the Bay Area Science and Innovation Consortium Camila Mena, Research Analyst (BASIC), a partnership of Northern California’s leading scientific research laboratories and thinkers. Carolyn Garrett, Intern

About BASIC External contributors provided their unique insights into the future of advanced manufacturing in California. The Bay Area Science and Innovation Consortium (BASIC) is an organization of the Bay Area’s leading Section 1 research and innovation companies and institutions, Hector Gutierrez and Patrick Van den Bossche, which together constitute the world’s greatest body of A.T. Kearney technology innovation capacity. Its participants include Insight Pages public and private universities, national laboratories, and leading private sector companies. BASIC’s mission is to Lothar Schubert, GE Digital advance the science, technology and innovation leader- Diego Tamburini, Autodesk, Inc. ship of the Bay Area, California and the nation. By bring- Lawrence Lee, Tolga Kurtoglu, and Janos Veres, ing together the university technologists, laboratory PARC, a Xerox company directors, CEOs and CTOs who lead the region’s world David Wahl and Charlie Thayer, Jabil renowned research organizations, this unique multi-sector collaboration provides a platform through which the Kirk Klug, Siemens Industry, Inc., Mobility Division, Bay Area’s science and innovation community identifies Rolling Stock and addresses issues and opportunities impacting the Joshua Cohen, Wendel, Rosen, Black & Dean LLP region’s innovation leadership and its role as the world’s Greg Matter, Jones Lang LaSalle leading marketplace for ideas. Contents

Executive Summary...... 1

Part One Part Two

Chapter 1 California Manufacturing Major Drivers of Change...... 7 Regional Clusters Analysis...... 68 Shifting Consumer Expectations...... 8 Los Angeles Area...... 68 Globalization...... 10 Bay Area...... 71 Technological Advances...... 13 Orange County...... 74 New Productivity Levers...... 18 Central Valley...... 76 Changing Workforce Dynamics...... 20 San Diego Area...... 78 Implications of the Manufacturing Revolution...... 22 Central Coast...... 81 Sacramento Area...... 84 Chapter 2 California’s Shifting Landscape: Manufacturing Northern California...... 87 and the Innovation Ecosystem...... 25 Growth Trends...... 26 Appendices Growth in the Recent Time Period, 2010–2014...... 28 Interviews...... 90 Growth in the Long Term, 1990–2014...... 31 Methodology...... 91 Manufacturing Wages in California...... 37 Regional Manufacturing Strengths...... 41 Tables & Notes California’s Innovation Ecosystem...... 44 California Manufacturing Patent Activity...... 47 Regional Clusters Tables...... 92 Notes...... 109 Chapter 3 Strengthening California’s Environment for Manufacturing...... 51 Stimulate the Commercialization of Research and Development through Cluster-Based Strategies...... 52 Grow the Talent Base for Advanced Manufacturing...... 57 Provide Access to Capital and Financial Incentives for Manufacturers...... 60 Address the Cost of Doing Business in California for Manufacturers...... 63 California—with its diverse economy and history of innovation—is well positioned to capture future growth in many manufacturing sectors, but state and local governments will need more targeted policy tools to stimulate commercialization of new products, close the workforce gap, and incentivize more manufacturers to locate within the state. While the offshoring of production and automation technology have fundamentally transformed the industry, high-skilled manufacturing jobs are essential to a balanced, competitive economy. Today, advanced manufacturing techniques, the growing maker movement, and a renewed national interest in research and development have led to a reinvention of the manufacturing industry. Executive Summary

Throughout much of the 20th century, the US economy was buoyed by the manufacturing sector, which pro- Major Drivers of Change vided a source of middle-income jobs and drove new Manufacturing is undergoing a major transformation. waves of innovation. Offshoring and recession have had These changes are creating both opportunities and major impacts on the sector, causing employment to competitive challenges comparable to those brought shrink. However, technological advances and shifting about by the invention of the steam engine and the global cost factors are now creating new opportunities Internet, and a third industrial revolution is already for domestic manufacturing. being triggered. Five forces in particular will impact California’s manufacturing sector. With more manufacturing jobs than any other state,1 California has a diverse manufacturing base. Its innova- Shifting Consumer Expectations: The rise of the tion ecosystem, which has led to links between manufac- Internet has created growing numbers of “con- turers and technology companies, makes it particularly nected consumers” and a world in which consumers well positioned to take advantage of a resurgent interest want customized services and products with shorter in domestic manufacturing. This is especially true for delivery times. From the way businesses interact products of an advanced technological nature and with customers to the high service level customers products that depend on custom design and rapid have come to expect, the relationship between users response to markets. and producers will become more engaged and will change the product and service innovation process. Due to technological change, which has reduced the number of workers required for most production Globalization: As wages rise, China is losing its status processes, this manufacturing renaissance is unlikely as the low-cost manufacturing country of choice, to generate jobs at the high levels it did in the past; and companies are reevaluating their facility location however, it is central to a balanced economy and, if options. Some are considering reshoring their supported, can be an important source of economic manufacturing operations closer to Western markets. competitiveness and high quality employment. This has led to a growing conversation about the rejuvenation of domestic manufacturing.

1 Reinventing Manufacturing

Technological Advances: Advances in additive manufacturing (3D printing) and increasingly smart, California’s Shifting Landscape: flexible automation are upending traditional pro- Manufacturing and the duction models and facilitating the development of low-volume, high-cost products or highly customized Innovation Ecosystem applications such as medical devices and aerospace Since the last economic downturn, manufacturing em- and defense parts. ployment in California has been growing. While overall New Productivity Levers: The expansion of “lean manufacturing in the state has experienced declines manufacturing” and the growing role of sensors similar to national trends since 1990, in the 2010–2014 and data analytics (the Internet of Things) in period manufacturing employment has grown, though manufacturing applications are delivering value not as fast as employment overall. Between 2010 and for manufacturers, producing efficiency gains and 2014, total manufacturing employment expanded by increased revenue through improved customer 3.1 percent in the state. (Total state employment grew experience and value-added services. by 9.2 percent.) Employment gains were seen in 14 of 18 manufacturing sectors. Changing Workforce Dynamics: As production complexity continues to increase, manufacturers The following five manufacturing sectors met or will need skilled workers who can operate and exceeded California’s overall rate of growth in the maintain the machinery. The replacement of existing period from 2010 to 2014: infrastructure with smart manufacturing ecosystems Beverage Manufacturing, +19.9 percent, +8,295 jobs will also lead to a ripple effect creating indirect jobs Pharmaceutical & Medicine Manufacturing, in markets that supply, support and service these +9.1 percent, +3,917 jobs operating environments. With this shift from direct Medical Equipment & Supplies Manufacturing to indirect jobs, the role of the manufacturing plant , will shift from being a central employment hub for +9.1 percent, +4,499 jobs workers to becoming the nucleus of a larger network Fabricated Metal Manufacturing, +12.6 percent, which employs people in a range of other industries +14,387 jobs that provide supply, support, and services to the Machinery Manufacturing, +10.0 percent, manufacturing operation. +6,508 jobs

Of those five sectors, the growth in the first three (Beverage Manufacturing, Pharmaceutical & Medicine Manufacturing, and Medical Equipment & Supplies Manufacturing) has led to job gains in California over the long term period from 1990 to 2014: Pharmaceutical & Medicine Manufacturing expanded by 83.8 percent, totaling 46,877 jobs in 2014. Beverage Manufacturing expanded by 46.6 percent, totaling 50,035 jobs in 2014. Medical Equipment & Supplies Manufacturing expanded by 19.4 percent, totaling 53,922 jobs in 2014.

Following a trend similar to employment, the number of manufacturing establishments in California increased in the late 1990s and then steadily declined until 2013 when establishment growth resumed.

2 Executive Summary

Manufacturing wages in California are rising. Orange County is the third largest manufacturing While total manufacturing employment in 2014 was region in California, with 141,810 manufacturing 39.5 percent below where it was in 1990, inflation- jobs in 2014. It also has the highest concentration adjusted average annual wages were 42 percent higher. of manufacturing employment in the state, with Between 1990 and 2014, average annual incomes manufacturing jobs accounting for 10 percent of in manufacturing increased at a faster rate than the the region’s employment. economy as a whole, where incomes rose by 24 percent. This suggests that the structural shifts that have taken California’s Central Valley is the heartland of the state’s place in manufacturing in recent decades have resulted food production activity. Clustered around the cities of in the need for fewer but more highly qualified workers. Bakersfield, Fresno, Modesto, and Stockton, its manufacturing sector accounted for 98,038 jobs in 2014 Manufacturing is distributed across the state, with and 6.9 percent of total employment in the region. distinctive regional clustering. Although manufacturing clusters are concentrated in urban centers, especially in Manufacturing accounted for 6.2 percent of total Southern California, there are also pockets of producers employment in the San Diego Area in 2014. Of the in the state’s rural areas. The eight regions defined 84,615 manufacturing jobs in the region, a large in this analysis demonstrate distinct manufacturing portion are defense related. strengths and trends, and each has evolved in a Manufacturing accounted for 23,460 Central Coast different way since 1990. jobs in 2014 and 4.1 percent of total employment in The Los Angeles Area is California’s largest manu- the region. facturing hub. With 478,919 manufacturing jobs, The 21,145 manufacturing jobs in the Sacramento the region accounted for 38.5 percent of the state’s Area accounted for only 2.4 percent of jobs in the re- manufacturing employment and 8.4 percent of the gion in 2014—the lowest regional share in the state. Los Angeles Area’s total employment in 2014. In 2014, manufacturing accounted for 13,491 jobs in The Bay Area is a leading global hub of technology the Northern California region, or 4.0 percent of the innovation. Although it is one of the most expensive region’s employment. regions of the state, many manufacturers locate there because they work closely with the region’s technology companies. The Bay Area’s 293,847 manufacturing jobs made up 23.6 percent of manufacturing employment in California and 8.4 percent of Bay Area employment in 2014.

3 Reinventing Manufacturing

Provide access to capital and financial incentives Strengthening California’s for manufacturers. To create a stronger market for Environment for Manufacturing investment in the state’s manufacturing base, especially in small manufacturers, California could employ Specific actions can be taken to support the growth a tax credit for investments made in the sector. If the and advancement of manufacturing in the state and to benefits of the Industrial Development Bonds pro- develop the workforce its producers need. gram are marketed more aggressively through local Stimulate the commercialization of research and economic development channels, more manufacturers will be encouraged to take advantage of low-cost development through cluster-based strategies. capital when expanding or moving their operations. Better coordination of California’s research institu- Since prototyping can be costly for entrepreneurs and tions with business activities could help advance new companies that lack access to expensive manu- the state’s manufacturing ecosystem by supporting facturing tools, the creation of local facilities that economic assets already in place and leveraging provide access to manufacturing equipment can help existing innovation networks to drive the small manufacturers conserve resources and move commercialization process. their products more quickly to market. Grow the talent base for advanced manufacturing. Address the cost of doing business in California Advanced manufacturing requires advanced work- for manufacturers. Industrial land use policies force skills. As the existing manufacturing workforce can alleviate land availability issues, particularly ages and nears retirement, recruitment poses a major as housing and other commercial uses encroach. challenge for producers of advanced products or Limiting windows for CEQA challenges and those utilizing advanced processes. Initiatives are creating special manufacturing zones at the local needed to match workforce training with the needs level, such as Industrial Priority Corridors, can give of manufacturing employers, through apprentice- manufacturers greater certainty when making long- ship and career technical education programs and a term investments. statewide certification system geared to advanced manufacturing skills.

4 PART One

Technology is revolutionizing manufacturing processes through innovations in 3D printing, robotics and big data (the Internet of Things)— often based on innovations that come from California. A range of factors, including rising labor costs in China, are leading some manufacturers to bring production home. California is in a good position to capture much of this growth, but needs policies that support and incentivize investment. Throughout much of the 20th century, the US economy was buoyed by the manufacturing sector, which provided a source of middle-income jobs and drove new waves of innovation. Offshoring and recession have had major impacts on the sector, causing employment to shrink. However, technological advances and shifting global cost factors are now creating new opportunities for domestic manufacturing.

With more manufacturing jobs than any other state, California has a diverse manufacturing base. Its innovation ecosystem, which has led to links between manufacturers and technology companies, makes it particularly well positioned to take advantage of a resurgent interest in domestic manufacturing. This is especially true for products of an advanced technological nature and products that depend on custom design and rapid response to markets.

Due to technological change, which has reduced the number of workers required for most production processes, this manufacturing renaissance is unlikely to generate jobs at the high levels it did in the past; however, it is central to a balanced economy and, if supported, can be an important source of economic competitiveness and high quality employment. Reinventing Manufacturing

Major Drivers of Change

Manufacturing is undergoing a significant transforma- Figure 1: Forces Impacting Manufacturing tion as new technologies begin to enable new consumer expectations. The resulting wave of change will create both opportunities and competitive challenges comparable to those brought about by the invention of the steam engine and the Internet, and a third industrial revolution is already being triggered.

Simultaneously, manufacturing is increasingly becoming a hot topic in both public debate and in private board- rooms. For the past several years, US policy makers have been speaking of a manufacturing renaissance, promoting its potential for increased output and job creation while looking for ways to attract further investment from US and foreign manufacturers. As an example, Presi- dent Obama’s administration, through its “Make It In America” campaign, is actively encouraging companies to move manufacturing from overseas locations back Source: A.T. Kearney to the United States, hoping to create more jobs and increase the country’s international competitiveness. Seven major forces are driving the global change in manufacturing. Manufacturing company executives constantly wrestle with strategic and interrelated questions that affect Consumer Requirements: The prime driver of what, where, and how they make their products. Where change is the ever-rising level of consumer expecta- should we add capacity? How can we incorporate big tions. The always-connected consumer expects a data to improve productivity and customer satisfaction? highly personalized product available in short order. Given how quickly products and technologies change, Enabled by transformations in online retail and omni- what is the level of automation that we should employ? channel fulfillment, these expectations are rapidly What skill sets should we acquire or develop? To answer making their way back upstream to product design. these questions, they increasingly need to look beyond The same high expectation dynamic is present in their immediate activities and take into account the total B2B settings. picture of forces that impact manufacturing.

7 Reinventing Manufacturing

People: New workforce dynamics are evolving as a Globalization: Rising labor costs in China that are shrinking manufacturing talent pool, emerging new narrowing cost differentials with the US will contribute technologies and increased use of big data are driv- to shifts in the manufacturing roles of various regions. ing the need for new skill sets and different ways to Technological Advances: The disruptive impact of deploy and manage the workforce. additive manufacturing and automation will test and Technology: The traditional, manual and reductive reshape traditional manufacturing processes. manufacturing model is being reshaped by new addi- New Productivity Levers: The expansion of “lean tive manufacturing and automation technologies. manufacturing” and the growing role of the Internet Productivity: Lean product development and lean of Things in manufacturing applications will create a supply chain efforts are reaching a new level of pro- new productivity environment. ductivity enabled by the richness of data generated Changing Workforce Dynamics: Manufacturers will by the Internet of Things. be faced with a growing skills gap and a future need Globalization: The global economy continues to for new indirect roles and skill sets. change the dynamics of production and consumption. The wage differentials that historically drove businesses to move manufacturing to Asia are shrink- Shifting Consumer Expectations ing, causing companies to re-evaluate their location From the way businesses interact with customers choices and reconsider production in or closer to to the high service level customers have come to their end markets. expect, the relationship between users and produc- Supply Chain: Global value chains are becoming ers will become more engaged and will change the more efficient, effective and agile as information product and service innovation process. exchange allows companies to focus more on their core competencies while collaborating with suppliers The Rise of the Connected Consumer and/or partners for other value chain needs. The Internet revolution has created 24/7 human connec- Environment: Forces of nature and governmental tion and communication that continues to take on new policies both expose global supply chains to risks that forms. Internet users are expected to almost double impact their ability to produce and deliver goods. from 1.7 billion in 2010 to 3.3 billion in 2017: Asian Simultaneously, alternative sources of energy are countries will be the largest contributors to this growth changing the economics of production locations. (see Figure 2), accounting for about 73 percent of it.

The ability to interpret, adapt and respond to these With continuous Internet connectivity, consumers have underlying forces will differentiate manufacturing at their fingertips the power to browse through large winners from losers in the coming decades. numbers of product and service offerings and pick the ones that are just right for them. This growing consumer Five specific forces will have the greatest impact on power will dictate how businesses cater their products California’s manufacturing sector: and services and the modes in which these are deliv- Shifting Consumer Expectations: The rise of con- ered. From the manufacturer’s standpoint, increased nected consumers and their desire for shorter deliv- connectivity means a higher opportunity to engage with ery times will change the relationship between users and win over a customer. and producers.

8 Major Drivers of Change

Figure 2: Internet Users by Region as technologies like 3D printing and customer interaction platforms enable cost-effective ways to create Internet Users (Millions) customized offerings. 884 2010 The rise of the connected consumer creates an ecosys- 2017 tem in which new companies and products can make their way onto a consumer’s radar screen and receive 571 immediate feedback which, in turn, can significantly 513 542 reduce the cost and risk of innovation. For established 450 427 players, this means an enhanced level of competition to maintain a healthy flow of new products and services. 319 285 256 284 209 In order to increase the cadence of product and service 149 innovation, companies will need to translate the big 89 90 data generated via digital platforms into insights that they can use to create new product or service features. China India Rest of Africa USA & Latin Europe This change in the innovation process will result in a Asia Canada America more integrated approach to design, where internal Source: The Economist Intelligence Unit functions—like manufacturing, marketing and R&D— leverage external sources, customers and suppliers to A Connected Consumer survey, conducted by A.T. co-create the next generation of products. Kearney’s Consumer Products & Retail Practice in July 2014, found that connected consumers spend most of Shorter Delivery Lead Times their online time using social media, with social networking accounting for 46 percent of connected consumer Next day delivery is a thing of the past. Think, browse, online time globally. (Of the remainder of consumer buy and get within an hour will emerge as the norm in online time, 28 percent is being spent on online enter- this age of instant gratification. As explored in a recent 3 tainment, 18 percent on shopping, and 13 percent on study by A.T. Kearney’s Health Practice, consumers transactional services.)2 today are benefiting from a new competitive landscape in which traditional delivery service companies like UPS This social-media-fueled connectedness generates and FedEx compete with alliances from other power- a vast quantity of “demand signals” and information houses and other market entrants: (data) that may contain valuable insights on consumer Google and Target are teaming up to offer same day behavior and consumption patterns. The gathering and delivery. processing of big data will help manufacturers and other USPS and Amazon are pairing up to offer grocery members of the value chain improve their ability to delivery and Sunday deliveries. respond to and even predict the needs of the ever more fragmented and fickle customer base. Amazon is testing drone deliveries in trend-setting states allowing them. Internet-empowered consumer connectedness has Disruptor companies like UberRUSH are pioneering also created a world in which consumers want custom- on-demand delivery. ized services and products. To meet customers’ unique needs and desires, companies are striving to deliver This competitive landscape has significantly improved more personalized products by facilitating mass custom- delivery service levels but has also squeezed margins for ization—the production of “one-offs” on demand. For transportation companies. A big driver of this change several decades, mass customization has been a topic has been Amazon and its free shipping offer, which of future promise, but lately it has become more realistic is now replicated by most online retailers. In 2000,

9 Reinventing Manufacturing

Amazon introduced free shipping on orders over $100. This offering was expected to fade away but it did not, Globalization since other retailers followed the move and made free The global economy is in constant movement and the shipping standard. manufacturing roles of various regions are shifting.

Going forward, consumers will continue to expect The Emerging Global Middle Class even higher levels of service as last mile delivery happens within an hour in a secure and cost effective As the transition from a West-centric to a diversified manner for both the retailer and consumer. To enable global economy continues, China and other emerging this level of order fulfillment, stores will continue their markets’ share of global financial assets is expected to evolution towards becoming integrated distribution and move from the current ~21 percent to ~36 percent by pickup points. 2020. (See Figure 3)

The continued need for higher service levels and shorter Figure 3: Projected Share of Global Financial Assets response times will impact how supply chains evolve and how manufacturers think of their products, foot- prints, and processes. Distribution points will need to be 100 closer to consumption; order quantities will be smaller 90 24 and replenishment cycles will be shorter; product design 29 80 and packaging will need to be optimized for delivery; 70 and more manufacturers will need to have more flexible 22 operations or be closer to the consumer or both. 60 27 50 Disrupting technologies like drones and self-driving cars 9 40 9 will further fuel the “need for now” and alter the eco- 14 nomics of last mile delivery providers. These changes 30 17 are being enabled by new laws: The FAA is expected to 9 20 regulate drone deliveries within two years, and the State 10 of California just vetoed the restriction of drone use in 10 19 11 residential areas. 0 2010 2020 Manufacturing technologies like 3D printing and robot- US Japan China ics will be integrated into the quick delivery solution to Western Europe Other developed Other emerging help with some of these challenges, and their implica- Source: Office of the Director of National Intelligence tions are explored later in this document.

10 Major Drivers of Change

Figure 4: Middle Class Population Projections facility location choices and consider reshoring their manufacturing operations closer to Western markets. Population (Billions) The United States, United Kingdom and even Italy 3,228 are increasingly seeing manufacturers return to in- 2010 region operations. 2030 The Rebalancing of Global Value Chains China continues to be an important provider of manufactured goods. However, due to ongoing annual labor cost increases of 10–20 percent, China is quickly los- 663 680 525 ing its status as the low-cost manufacturing country of 3143338 322 13 138 181 choice. This will change the role played by China in global manufacturing, as less complex and cost-sensi- AsiaAfricaUSA & Latin Europe tive production moves to other countries. Canada America Source: World Bank; Brookings Institution But its global leadership position will continue in a different form as China develops and reshapes its manufacturing capabilities. A shift away from low-technology This wealth shift is driven largely by the accelerat- and low-productivity to high-technology and high- ing growth of an emerging “global middle class,” as productivity manufacturing is already occurring, though working class wages increase, giving workers economic at a fairly moderate pace, as many Chinese companies access they didn’t have before (see Figure 4). This will adopt lean techniques and automation to compensate be a particular characteristic of China and India, which for higher labor costs. are both expected to see the size of their “middle class” income groups more than double by 2030. This effect is already underway in sectors like Automotive where labor-intensive, low-tech production is moving to By 2030, over 70 percent of China’s population will have countries with lower labor costs, such as Vietnam and entered the “middle class,” consuming nearly $10 tril- Bangladesh. Meanwhile, the flow of high-end production lion in goods and services. Similarly, India could be the from Western countries to China–mainly spurred by local world’s largest middle class consumer market by 2030, market growth, an acceptable productivity and labor-cost surpassing both China and the US. ratio, and a strong supplier base–is overcoming hurdles The implications of this transition are twofold. First, like IP risks, underdeveloped infrastructure (inland) and an manufacturing and logistics networks that have histori- opaque political environment, to change the landscape cally been optimized primarily to supply the West will and role of Chinese manufacturing. face demand from Eastern markets. Manufacturing As the economics change and the manufacturing role assets, which are still largely based in Asia, will therefore of China and other Asian countries shifts, the idea of a increasingly serve local markets. This change in focus massive return of manufacturing activity to developed paired with higher overall demand on the same assets countries has gained prominence. For the past 3 years, will likely result, at least in the short term, in increased the US has seen growing buzz about the promising reju- product cost and/or slower delivery response time to venation of manufacturing, fueled largely by a wave of serve Western customers. manufacturing reshoring. This shift has not yet occurred Second, the wage differentials that historically drove on a large scale, but a trend to bring manufacturing Western companies to move manufacturing to Asia are back to the US is becoming more evident. shrinking, causing these companies to reevaluate their

11 Reinventing Manufacturing

The US reshoring trend is underpinned by many eco- Figure 5: Top Reshoring Industries nomic and business factors including changes in labor costs, increased concerns about supply disruption, lower Percent Cases energy cost in the United States (partially as a result of shale gas exploration), and a general push from US Electrical Equipment, Appliance, & Component 15% Manufacturing federal and state governments to reduce administrative Transportation Equipment Manufacturing 15% barriers and the costs of bringing manufacturing back. Apparel Manufacturing 12% To better understand this trend, A.T. Kearney Computer & Electronics Product Manufacturing 10% analyzed close to 700 reshoring cases that have been Miscellaneous Manufacturing 7% published over the past 5 years. In the latest update Plastics & Rubber Products Manufacturing 7% of its Reshoring Database,4 reshoring activity has been Machinery Manufacturing 5% documented across many sectors, including some where reshoring was expected (Electrical Equipment, Fabricated Metal Product Manufacturing 5% Appliance, & Component Manufacturing; Computer Primary Metal Manufacturing 3% & Electronic Product Manufacturing; Plastics & Rubber Furniture & Related Product Manufacturing 3% Products Manufacturing; Machinery Manufacturing; Chemical Manufacturing 2% Fabricated Metal Product Manufacturing; Primary Other Manufacturing 8% Metal Manufacturing; and Furniture & Related Product Other non-manufacturing 8% Manufacturing), but also sectors that most thought would Source: A.T. Kearney Reshoring Database never return, like Apparel Manufacturing (see Figure 5), which would be hard to explain if only macro-economic factors were at play.

Analysis of documented reshoring cases shows that Figure 6: Top 10 Reasons for Reshoring companies can have different reasons to reshore (see Figure 6) and use different approaches to making it Percent Mentions happen, even within the same industry. Customers expecting shorter lead times and companies becoming Delivery Time Improvement 30% more worried about the quality of their products are Quality Improvement 29% forcing executives to rethink their supply chains. Also, Image/Brand (prefer US) 20% some companies are bringing back manufacturing for Freight Cost Improvement 20% the same reason they offshored it in the first place: cost! Wage Cost Improvement 20% “Made in USA” is making a comeback as a tag line to Total Cost Ownership 17% boost sales and, as a result, is moving up in the ranking Energy Cost Improvement 14% for reasons to reshore, particularly in the last two years. Government Incentives 14% Innovation/Product Differentiation Improvement 13% Higher Productivity 13% Source: A.T. Kearney Reshoring Database

12 Major Drivers of Change

Technological Advances Unconstrained Design Manufacturing technology is testing and reshaping Four applications will allow the full potential of additive the traditional processes of reductive manufacturing, manufacturing to come to life. multi-component assembly, and manual labor in favor Prototype Iteration: With additive manufacturing, of more efficient and high-performing processes not only can prototypes be made with limited based on additive manufacturing and increasingly machine downtime, but production tooling itself can smart, flexible automation. be 3D printed and can be more readily adapted to the evolving iterations of prototypes. Additive Manufacturing Customization: By dramatically reducing the time- With more than thirty years of technological develop- lines needed for customization, additive manufactur- ment, additive manufacturing, also referred to as 3D ing will allow potentially unlimited ways for innovative printing, has quietly promised to revolutionize manu- companies to create customer-specific products in lot facturing; only recently, however, has this formerly sizes as small as one. underground fervor gained mainstream media attention. Design Extension: Value-added design features that Despite the tendency for enthusiasm about its poten- are too costly to implement with current production tial to get ahead of its practical applications, additive methods, such as internal webbing for dramatically manufacturing is already providing traditionally high- improved strength-to-weight ratio, become not only cost regions with an opportunity to regain manufactur- possible, but prolific (see Figure 7). ing competitiveness. New Algorithms: Algorithms that seek to Today, production level applications of 3D printing are improve customer experience and product value primarily attractive for low-volume, high-cost products will emerge as advanced computing companies or highly customized applications such as medical develop programs that generate designs based on devices and aerospace and defense parts. This early functional requirements. adoption, however, is driving technology, infrastructure, and cost improvements that are making additive manu- Figure 7: Design Extension for Improved facturing increasingly competitive for larger batch sizes Strength-to-Weight Ratio and broader applications. The technology also enables design-to-buy product development by allowing an unprecedented level of product personalization. As investments and advancements continue, financial markets are responding: stock valuations in the sector are growing, private equity is increasingly moving money into 3D printing companies, and M&A activity is picking up.

While this momentum is likely to create a tipping Images courtesy of Autodesk point in the next few years, the definitive answer to the question “How can I use additive manufacturing In collaboration with Autodesk, architect David to create a competitive advantage for my company?” Benjamin started with a simple solid chair (left), applied still remains elusive for most executives. Manufacturing design software to reduce weight (center), and then fed leaders must continue to monitor advances in the field, the design constraints (e.g., the weight the chair must particularly as three advantaged characteristics become bear) into a 3D design system capable of evaluating an more prominent: unconstrained design, variable cost infinite number of ways to build the same product. The manufacturing, and end user value creation. result (right) was a stronger seat weighing 70% less than the solid chair.

13 Reinventing Manufacturing

Variable Cost Manufacturing Value Chain Reconfiguration: Disruption of the current “make vs. buy” decision paradigm will grow Two evolving characteristics will drive continued im- as corporations utilize 3D printing to bring some provement in the economics of additive manufacturing. outsourced operations in-house while continuing Decentralized Agility: Additive manufacturing has to outsource others (see Figure 8). This will lead to the potential to enable a more agile, responsive value a more optimized supply chain that translates into chain that can deliver favorable combinations of lower costs for end users. customization, cost, and speed. Inventory / Obsolescence Management: Low Barriers to Entry and Exit: Enabled by additive Service levels will also benefit from an additive- manufacturing, software-driven operating models manufacturing-driven value chain, as just-in-time including open innovation and agile development fabrication can respond swiftly to demand for new will drive manufacturing innovation through and replacement parts. collaboration, low barriers to entry, and scalability. Dynamic Competitive Sourcing: In an additive- manufacturing-driven value chain, a supply manager End User Value Creation would be able to more granularly segment the prod- In the pursuit of value for the end user, additive manu- uct portfolio into sourcing families that suppliers can facturing will complement existing manufacturing in at qualify for based on common characteristics, such least three areas. as manufacturing processes, material, production volume, etc.

Figure 8: Aerospace Illustration—Scaled Turbine Exhaust Case Single Unit Production

Traditional Manufacturing Value Stream Additive Manufacturing Value Stream

$33K $127K End End Customer Customer $40K $70K Est. ~35% $42K Est. ~35% OEM Integrates OEM Prints Part and Integrates Est. ~35% Fabrication $31K Est. ~35% $15K Est. ~35% Machine Shop 0% $15K Machine Shop $20K

Est. ~35% Est. ~35% Castings/ Tier 3 Tier 2 Tier 1 OEM Integrated Powder Supplier Tier 3 Tier 1 OEM Integrated Forgings Price Price SG&A + Profit Variable Cost Fixed Cost Total Part Ownership Flow Customer Furnished Matl. %SG&A+Profit Source: A.T. Kearney

14 Major Drivers of Change

Automation The cost of traditional industrial robots has fallen dramatically in recent decades in comparison to hu- When we think of robots, many of us think of everything man labor compensation, but it remains high relative from R2-D2 to hulking machines that weld together to the new wave of co-bots. A traditional robot could automotive parts to autonomous vacuum cleaners that cost in excess of $100,000 for the machine itself and scurry around cleaning our living room floors. Indus- would generally require at least twice that in additional trial robots, however, are at the onset of a new wave of expenses to program, install and set up the machine on innovation with the potential to significantly alter the site.6 The new collaborative robots can cost less than manufacturing floor and with it, industry. Manufactur- $30,000 and can be set up for an initial task in as little ers are moving beyond the large, expensive, caged as an hour, without requiring any reconfiguration or robots that tirelessly perform simple, repetitive tasks in extended disruption of the manufacturing floor. Such a fixed system, into a new era of “collaborative robots” low capital expenditure means that robots now compare or “co-bots.” These co-bots work alongside humans on favorably on an hourly basis to human labor, even in the manufacturing floor to enhance safety, precision and lower-wage countries. productivity in an increasing number of applications and without fundamental redesign of the flows in the factory. Co-bots have the added capability of being flexible, as they are able to switch among multiple tasks with little Distinct from simple automation, robots, and especially modification or reprogramming. Such flexibility enables co-bots, can work in unstructured environments, making shorter production runs with changeovers that are less use of sensors, vision software, sonar, and autonomous complex and time consuming. In the European Union, navigation technology to take on tasks that formerly only the LOCOBOT consortium project to develop co-bots a human could do. Robots can relieve workers of straining for the electric vehicle industry estimates that the in- or dangerous factory tasks and can often perform tasks dustry will see near-term (2–5 years) benefits due to the faster and more precisely than a human could. While increased efficiency and flexibility afforded by co-bots.7 robots are becoming capable of an increasing array of tasks, in recent years, approximately three quarters While the prevalence of “lights out factories” (in which of industrial robots in use specialize in three tasks: a facility runs fully automated) or the full deployment handling operations (38 percent), welding (29 percent) of co-bots may be a decade or more away, companies and assembly (10 percent).5 These tasks are simple and should be thinking now about how robots will come repetitive, generally performed in a sectioned-off portion to change their industry and their own operations. As of the plant, and the robots are monitored locally by robotics technology continues to advance, as require- trained technicians and programmers. ments for precision assembly increase, and as wages continue to rise, the trade-off will increasingly tip towards automation across industries and factory tasks.

15 INSIGHT General Electric’s Industrial Internet: Moving from Smart to Brilliant Lothar Schubert, GE Digital

Until very recently, hardware, software and data sys- The key components of the Brilliant Factory are tems were developed for separate purposes, but when advanced technologies, sensor-enabled automation, they are brought together, dramatic new possibilities factory optimization, and supply chain optimization. arise. This convergence is called the Industrial Internet Advanced Technologies: With laser-powered 3D and its potential is enormous. With the Industrial Inter- printers, workers can rapidly prototype new solutions net, analytics become predictive, employees increase and accelerate the production of next-gen parts. productivity, and machines are self-healing. Sensor-Enabled Automation: Throughout the While no two factories may look or act alike or have the factory, sensor-enabled machines collect data, exact same challenges, all of them are trying to achieve enabling plant operators to prevent unplanned a common goal: optimal performance through intel- downtime and boost productivity. ligent decision-making and the effective management of resources—people, machines, tools and materials. Supply Chain Optimization: Cross-business tools In the past, manufacturers may have instrumented a can reconfigure supply chain and factory operations critical piece of equipment or optimized one aspect to meet specific customer needs with more speed, of the manufacturing process. However, what we have standardization and savings. learned is that connecting information upstream and Factory Optimization: Data-driven human pro- downstream is critical when optimizing the factory. It is cesses, robot-supported work and other operations important to create a repeatable, consistent and cost can be changed in real time to maximize productivity effective approach to connecting machines, thereby and efficiency. providing the visibility necessary to form the foundation of the “Digital Thread” across the complete Finally, feedback loops are at the core of the Brilliant enterprise, where projects flex with business changes Factory, whether they come from GE plants or remanu- and priorities. facturing and service shops fixing parts after they have been used by customers for a long time. The feedback Uniting the physical and the digital—and the human loop helps GE to understand whether the parts, as and the machine—makes possible a new breed of designed, could be manufactured with the specified manufacturing plant that can drive its own advance. features and materials, within acceptable cycle time, GE calls this the “Brilliant Factory.” GE believes that cost and yield. Equally important, after the parts have the key to optimizing the full product life cycle from been in service, GE can find out how they looked and design to service is through analytics of data that has behaved. This information is then sent to GE’s design been traditionally locked inside corporate silos. In the teams and to their own software-enabled design tools, Brilliant Factory, equipment and computers talk to each so they can validate and learn. other over the Industrial Internet in real time, share information, and make decisions to preserve quality and Today, GE collects more data than ever before because prevent downtime. In such a factory, production lines of better sensors and better control systems, and the are digitally connected to supply, service, and distribu- company has the capacity to analyze that data bet- tion networks to maintain optimal production. ter than ever before because of advanced software and predictive analytics. By continuously changing the As one can imagine, when machining a part, drilling a way we work, we are better able to take action and to hole or putting new materials together, a great deal understand how well our processes are working inside of important data that was previously out of reach can the factory. As part of GE’s Brilliant Factory strategy, now be collected. Being able to transmit that infor- it is building the Digital Thread from product design mation, store that information, figure out which data through the supply chain and is leveraging the latest points are important, and then do the analysis has been technologies to optimize operations in real time. a huge step change in enabling the Brilliant Factory. It is a commitment to combing operational technology, Capitalizing on 3D modeling tools, sensors, control- the Industrial Internet, and the continuous changing of lers, robotics, pillar software such as Product Lifecycle the way we work, to put the right solutions at the right Management (PLM), Enterprise Resource Planning places at the right time. (ERP) and Manufacturing Execution Systems (MES), as well as using its Predix platform for machine data cloud connectivity, security and manufacturing analytics, GE is “digitally-enabling” its operations and gathering hundreds of gigabytes of data to gain new insights into how its machines are operating and how its processes are working on the factory floor. GE is also monitoring its vast distribution network and inventory supplies in ways never done before. The results have been incred- ibly impactful—driving increased productivity, reduced costs, reduced cycle time and improved quality. One of GE’s Brilliant Factory sites in Greenville, South Carolina has estimated that more than $100 million in benefits have accrued over a 3-year period by building the Digital Thread from model-based engineering through sensor-enablement on the factory floor. As part of the Digital Thread strategy, GE will increase their machines and materials connectivity by 400% in 2016. Connect- ing the Digital Thread and utilizing the data in new ways is the foundation for making factories of the future brilliant.

As GE sees things, it is just starting to scratch the surface. The opportunity to apply new types of analysis to factories arrived over the last three or four years, especially with the emergence of the Industrial Internet and the ability to handle data sets on a very large scale. Reinventing Manufacturing

floor labor costs and material waste. But Lean goes far New Productivity Levers beyond direct labor, as it starts with truly understanding Productivity will move beyond Lean and into an the customer’s needs and then focuses on delivering environment where sensors, data and analytics in a way that minimizes any kind of waste, not just optimize operations in real time. waste in materials or labor. It incorporates assets, resource inputs, inventories, indirect manufacturing and Going Beyond Lean even other company functions, from R&D up to Sales (see Figure 9). Since the early days of the Lean movement8 epitomized by Toyota and described in the 1990 book The Machine Third, to achieve the next step change in productiv- That Changed the World, thousands of companies have ity, manufacturing companies will have to push Lean launched initiatives to eliminate waste in their factories. beyond their walls. For example, consumer electronics However, with Lean in the mainstream, it is no longer a companies face the challenge of reducing their time to differentiating lever by which companies in developed market in order to outperform their competition. One countries can compete with those in low-labor-cost way to do this is by maximizing operational flexibility by countries. The answer to what comes after Lean is three- leveraging third parties and minimizing their own assets fold: (1) more Lean; (2) Lean in inputs and other func- through better collaboration with suppliers, clients and tions; and (3) Lean beyond the company’s walls. other stakeholders in their ecosystem. By doing that, these companies effectively extend Lean beyond their First after Lean comes “more Lean,” since many com- internal operations to reach a more efficient level of panies are still applying Lean to only a portion of their interoperability among partner entities. manufacturing operations, thereby leaving significant opportunity on the table. Within any given industry and market, significant productivity differentials continue Figure 9: Lean Dimensions to persist, and they prove that some players in that industry or market are more Lean than others. In addition, in markets that came later to the Lean game, such Operations excellence strategy as China, “classic” Lean still has an important place on the management agenda, as labor costs are increasing Interoperability quickly and basic Lean principles are increasingly being used to keep these costs somewhat under control. Flexibility and Going modularization beyond lean Second, even for those who have rolled out Lean ing ing actur successfully across their own operations, there is still actur Lean opportunity to look beyond their production and Direct manuf management systems to focus on input factors and Labor Indirect manuf supporting functions. While it is true that Lean is Assets Functions Resources increasingly the standard (e.g., nearly all applications Fully capturing for A.T. Kearney’s annual “Factory of the Year” the impact of lean benchmarking competition state Lean as a key element Input factors of driving performance in their operations), those Source: A.T. Kearney standard Lean programs mostly focus on reducing shop

18 Major Drivers of Change

The Internet of Things (IoT) As manufacturing industries start to incorporate an and Data Analytics increasing number of sensors into their manufacturing processes, the amount of data being gathered will rise Another new paradigm of productivity is being significantly. This increased visibility of the manufactur- enabled by the ubiquity of low-cost sensors, pervasive ing process will create a positive feedback loop. connectivity, and near unlimited computing power— collectively described as the “Internet of Things” (IoT). For manufacturers, the use of IoT will ultimately deliver value through a combination of three levers: (1) reduced The Internet of Things and the advanced use of data cost through improved productivity and operational analytics will be pervasive. A.T. Kearney estimates that efficiency; (2) improved capital efficiency through lower the number of IoT devices will go from half as many asset downtime; and (3) increased revenue through im- as traditional connected devices in 2013 to double proved customer experience and value-added services. that number by 2020 (see Figure 10).9 This growth will translate to approximately 3.5 connected devices for The applicability of these value levers can be expected every human being on the planet.10 This adoption rate to evolve over time (see Figure 11) and be realized in at will vary by location, but in many communities within least four types of applications. California—which is at the forefront of most things Process Control: The use of sensors in manufactur- related to technology—the adoption rate is expected ing processes will grow in number and sophistication to be at the higher end. to provide higher resolution, precision and frequency of information to the process control brain which, in turn, will be able to more promptly and accu- Figure 10: Estimated Worldwide Growth of rately correct the course of production and increase Traditional Connected Devices and IoT throughput and yield. Asset Management: Sensors will enable real-time Connected Devices (Billions) 30 monitoring of machine performance. Maintenance programs and methods of the past will give way to 25 continuous machine communication, the optimization 20 of maintenance activity, and ultimately higher asset availability. 15 Internet of Things 10 IoT in Production and Post-Production: Produced parts will also be able to communicate via embedded 5 sensors and alter the course of production in real Traditional Connected Devices 0 time. For example, a silicon wafer could know its own 2008 2010 2012 2014 2016 2018 2020 performance characteristics and needs for testing and Source: A.T. Kearney could transmit that information to the manufacturing and quality testing process. In addition, once they leave the factory and become operational, sensors could also communicate their use and performance back to manufacturers. This will allow manufacturers to continuously improve the design and manufacturability of new products.

19 Reinventing Manufacturing

Inventory Management: The cost effectiveness and sophistication of sensors will eventually enhance Changing Workforce Dynamics current tracking technologies (e.g., Radio Frequency The replacement of existing infrastructure with smart Identification) and increase the use of IoT technol- manufacturing ecosystems will lead to a ripple effect ogy to track inventory and the flow of goods within creating indirect jobs in markets that supply, support a manufacturing plant, a distribution network and a and service these operating environments. retail point of sale. Addressing the Talent Gap Before IoT becomes a reality in manufacturing, however, it needs to overcome a set of systemic hurdles With most machines being computer controlled, today’s that includes a limited near-term business case, lack manufacturing processes and equipment have become of standards, security concerns, privacy concerns, and quite sophisticated. As production complexity continues implementation complexity issues. to increase, manufacturers will need to find and/or develop the skills required to operate and maintain These hurdles are being tackled in different forms and the machinery. These new skills are not completely shapes, including the creation of standards consortia unrelated to the old skill sets of manufacturing workers and alliances in Europe (Industrie 4.0) and North America but rather are built on top of their skill foundation. (Industrial Internet Consortium). Though solving these However, a conflict arises when the talent pool shrinks challenges is not trivial, the prognosis for progress is or ages, as there are few skilled workers left to develop good—which suggests the need for manufacturing the new skills required. executives to monitor the evolution of this new productivity lever. The age profile of US manufacturing workers had an all-time-high median age of 45 years old in 2013 (see Figure 12), compared to 40 years old in 2000. Worsening the problem is the fact that about 10 percent Figure 11: IoT Value Creation Evolution of the current manufacturing workforce will retire in the next 3 to 5 years, and there isn’t a significant number of Value quality replacement workers coming in. This skill gap is Customer highlighted by the recent postings of over half a million experience Traditional Internet operations of Things Innovation unfilled manufacturing jobs in the US. technology technology management Production equipment Figure 12: Aging of Manufacturing Workers Asset TCO management

Process control 37% 45% 50% > 45 years old

Operations 63% efficiency 55% Time 50% < 45 years old Source: A.T. Kearney

2000 2006 2013 Data Source: Bureau of Labor Statistics Analysis: A.T. Kearney

20 Major Drivers of Change

These trends threaten a serious loss in the operational New Indirect Roles Created expertise of workers, as the skill sets needed in the manufacturing industry mainly reside with experienced The last three decades have seen a steady decline in the workers. Unfortunately, their expertise typically has not number of direct manufacturing jobs, yet direct labor pro- been codified and is therefore at risk of being lost upon ductivity levels have never been so high (see Figure 13). their retirement. At a first glance, one might think that all manufacturing A strong and renewed skills base will be central to jobs are effectively driven away by more productive strengthening the US manufacturing base in the ways of manufacturing (automation, etc.). However, future. This points to the importance of systematically these lost roles of the past are giving way to new identifying processes that are heavily reliant on positions in the extended supply chain. expertise and codifying them into standard operating Traditional, direct manufacturing jobs typically included procedures, documented process recipes, and fully very manual tasks performed by humans, for example, established apprenticeship models, before they are lost. setting up equipment, loading material, operating The renewal of manufacturing skills will need to be built machines, and moving materials from one work station on the current skills foundation and will need to include to the next. As manufacturing has become more auto- the practical application of programming, simulation mated and complex, robots and machines now perform and statistical modeling among other fields. many of these tasks and the human-performed tasks are Not only will U.S. manufacturers have to stem the rapid shifting to higher value-added activities such as optimiz- loss of essential knowledge that is not easily replicated ing the plant layout, programming robots and machines or replaced, they will also need to step up recruiting and to perform tasks, and monitoring performance to iden- training of new workers to manage and carry out manu- tify parameter excursions. facturing activities. As they ramp up their recruiting These new roles are found in the extended supply efforts, they will find themselves competing with other chain as manufacturing companies leverage many other sectors that may be more appealing to new job seek- indirect jobs and suppliers (tier 1, tier 2, tier 3 suppliers; ers. Younger workers often see other sectors as more logistics; banking; etc.) and are connected in real time, attractive, even when they pay less than manufacturing, effectively creating smart manufacturing ecosystems. because they appear to have more comfortable working conditions and to require fewer technical skills.

Figure 13: US Manufacturing Direct Jobs vs. Output

Manufacturing Employment Manufacturing Production Value Added 18,000 110 17,000 100 16,000 90 15,000 14,000 80 13,000 70 12,000 60 11,000 (Indexed to 100 in 2007)

10,000 50 Mfg. Production Value Added Mfg. Employment (in thousands) 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Data Source: Bureau of Labor Statistics and Bureau of Economic Analysis Analysis: A.T. Kearney

21 Reinventing Manufacturing

This leverage of indirect jobs results in a job multiplier effect. According to the National Association of Implications of the Manufacturers, the manufacturing employment Manufacturing Revolution multiplier is 1.58 on average (see Figure 14), but smart manufacturing environments are known to raise the The many forces of change highlighted above are employment multiplier to 2.0 or even higher. (A study fueling each other as they evolve and transform the of the workforce related to Intel in Oregon showed a manufacturing landscape. ratio as high as 4.1.)11 And while the key drivers of change will affect all The implementation of new smart manufacturing sectors, some industries will be disrupted more than ecosystems will indirectly create high-skilled professional others. A.T. Kearney evaluated groupings of the NAICS jobs with higher salaries in adjacent/supplementary industry sectors to understand the current state and industries that are different from the manufacturing potential impact of the five forces discussed in the sector but directly related to it. The skills required for previous sections. The results of this evaluation are these indirect jobs will also evolve. For example, due shown in Figure 15 using an impact scale of 0 to 4, to the dynamic nature of the technology behind smart where 0 means no impact and 4 means high impact. manufacturing environments, there will be a strong This assessment suggests that three manufacturing demand for workers with a background in data analytics, sectors have the potential to be most impacted by simulation, and programming. these five forces of change, suggesting particular With this transformation of direct to indirect jobs comes opportunities (and threats). a shift in the role of the traditional manufacturing plant: Computer, Electronics & Electrical Products: This it evolves from being a central employment hub for sector is expected to see the biggest impact as it workers to becoming the nucleus of a larger network both satisfies and enables innovation-driven shifts which employs people in a range of other industries in consumer expectations. Manufacturers will have that provide supply, support, and services to the the opportunity to produce in local markets more manufacturing operation. cost-effectively as automation and 3D printing enable lower-cost, highly-customized manufacturing. Simultaneously, IoT will connect consumers to Figure 14: Direct vs. Indirect Manufacturing Jobs manufacturers throughout the entire product life cycle, providing manufacturers with detailed Millions Employment Multipliers information about consumer patterns, but also 20 obligating manufacturers to deliver a higher level 18 of quality and service. With the increased presence 16 of these information technologies, a high-skilled 14 12 workforce will be required to fuel the growth and 10 transformation of this sector. 8 6 Transportation Vehicles & Equipment: A more 4 customer-centric value proposition from the industry 2 will mean more interaction and expectation from 0 1.5 x 2 x 3+ x end users. This sector will also continue to change 2000 2005 2010201520202025 its manufacturing footprint as it addresses the Direct Jobs in Factories Indirect Mfg-Dependent Jobs need to be closer to its markets and leverages new Data Source: National Association of Manufacturers sources of productivity including automation and Analysis: John A. Bernaden, SmartManufacturing.com IoT. Companies such as Tesla Motors and Local

22 Major Drivers of Change

Motors are already providing proof points for highly- customized, regionally-produced products.

Apparel & Textiles: The apparel industry is highly consumer driven and often volatile, with short product life cycles that require fast delivery and tight control over production and inventory. Particularly at the industry’s higher end, the past value chain strategy of using low-cost countries for production will give way to more localized and integrated production that leverages IoT to sense consumer demand, engages automation to efficiently personalize products, and uses 3D printing to produce integral, personalized apparel and accessories on demand.

Figure 15: Evaluation of Impact of Forces of Change on NAICS Industry Sectors

Selected Forces of Change Shifting New Changing Consumer Technological Productivity Workforce Sectors Requirements Globalization Advances Levers Dynamics Total

Minerals

Fabricated Metals & Machinery

Computers, Electronics & Electrical Products Transportation Vehicles & Equipment

Furniture

Food, Beverages & Tobacco

Textiles & Apparel

Paper & Printing

Petroleum, Chemicals & Plastics

No Impact High Impact

Note: Using the NAICS industry categorization, nine industry groupings were created based on the similarity of resources used, markets reached and their operating characteristics. They add up to 97% of manufacturing output. Source: Bureau of Labor Statistics Analysis: A.T. Kearney

23 INSIGHT The Third Era of Design: Connection Diego Tamburini, Autodesk, Inc.

In the early 1980s, the design process underwent a The products at the center of it all are being radically major evolution when computer-aided design (CAD) transformed. Most “things” designed today are getting went mainstream and 2D drawings moved from paper an IP address and can connect with and be addressed to the computer. While this was, without a doubt, a by other things, and they participate in a wide range radical step for design, CAD was basically being used of unprecedented multi-device scenarios. Inside these as a fancy replacement for pen and paper to document products things have changed too: the lines between the design (although in a much more accurate and software, hardware and electronics are blurring and efficient way, of course). This period is called the“Era becoming virtually indistinguishable. Electronics of Documentation.” and software are not just supporting the hardware anymore; they are the product too. This requires a As design software evolved from 2D to 3D, the Era of design mindset (and tools) that are different from Documentation slowly gave way to the “Era of Opti- those involved when various portions of the product mization.” This era is all about creating rich 3D models are developed in “disciplinary silos” and somehow and using them to visualize, simulate and optimize a forcibly integrated down the line in the product design before the first prototype is built. We are at the development process. The Era of Connection requires tail end of this era now. designing with connectivity in mind from the start, We are now entering a new era of product develop- with a more seamless integration between hardware, ment; one characterized by complex, multi-disciplinary, software and electronics design. interconnected systems. This period can be called the The expectations customers have for products are “Era of Connection.” also changing. Customers are increasingly expecting In the Era of Connection, no product is an island any- products to be extended and upgraded: extended by more. Instead, products are nodes in a larger network third parties who can use the products’ APIs to develop of interconnected systems—a network that includes applications or services on top of the products (just as not only other products, but also the operational envi- developers do today for PCs and mobile devices), and ronment, the customers who use them, the resources improved with over-the-wire software upgrades that that manufacture them, the designers who design make the hardware perform better. them, the organizations that maintain them, the rules Disrupting the way things are designed and made, that regulate their behavior, the business objectives of the Era of Connection puts an even bigger burden the company that makes them, and more. on design software solutions: to build applications In this era, the goal is to optimize for the entire system, and solutions that not only utilize rich 3D models, but not just the individual product in isolation. While in the also connect them to new means of production and Era of Optimization we wanted to make sure that the consumption and support the new definition of what a design worked right, in the Era of Connection we want product is. to make sure that we have the right design. Reinventing Manufacturing

California’s Shifting Landscape: Manufacturing and the Innovation Ecosystem

People often don’t realize that California has more California’s producers are diverse, are geographically manufacturing jobs than any other state in the US. As distributed across the state, and include many small and of March 2015, employment in manufacturing sectors medium-sized manufacturers. Many work hand-in-hand totaled 1,271,672 in California, representing 9.3 percent with tech companies, prototyping designs and producing of the state’s total employment.12 specialized components and advanced end products.

California Manufacturing Employment by Sector, 1990–2014

2,250,000 Petroleum & Coal Products Mfg. Primary Metal Mfg. 2,000,000 Nonmetallic Mineral Product Mfg. Miscellaneous Mfg. 1,750,000 Chemical Mfg. Furniture & Related Product Mfg. 1,500,000 Printing & Related Support Activities Wood & Paper Products Mfg. 1,250,000 Plastics & Rubber Products Mfg. Pharmaceutical & Medicine Mfg. 1,000,000 Beverage Mfg. Medical Equipment & Supplies Mfg. 750,000 Machinery Mfg. Apparel, Textile, & Leather Mfg. 500,000 Transportation Equipment Mfg. Fabricated Metal Product Mfg. 250,000 Food Mfg. Computer & Electronic Product Mfg. 0

Note: For the California manufacturing analyses presented herein, the definition of the Chemical Manufacturing sector used throughout excludes Pharmaceutical & Medicine Manufacturing, which is analyzed and listed as a separate sector. Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

25 Reinventing Manufacturing

California is also home to some of the world’s largest Growth Trends technology companies that offer the products and services for advancing any production process. The In examining trends in California’s manufacturing state’s research organizations are pushing the envelope employment and establishments, two time periods are in advancing materials science, process design, highlighted in this report. Long-term trends, 1990–2014, manufacturing tools and technology. California’s reflect structural change in the economy, namely the innovation ecosystem is rich in resources that are long-term impacts of globalization, technological relevant for manufacturers. advance and overall restructuring of production. The recent period of observation, 2010–2014, illustrates Many of California’s manufacturers are closely integrated manufacturing growth since the low point of the last into the state’s innovation ecosystem. Better leverag- recession. This period has witnessed the rising cost ing of California’s distinctive innovation assets for the of labor in China, growing concerns about intellectual benefit of its manufacturers can reach beyond the state’s property and quality control associated with overseas borders, as many manufacturers are tied with affiliated production, historically low interest rates, and the quick- producers in other states. ening development and adoption of new technology that allows for a more distributed model of production.

California Manufacturing Employment Change by Sector, 1990–2014

Employment % Change % Change 1990 2010 2014 1990–2014 2010–2014 History 1990–2014 Beverage Mfg. 34,132 41,740 50,035 46.6% 19.9% Fabricated Metal Product Mfg. 168,420114,421 128,808 -23.5% 12.6% Machinery Mfg. 99,366 65,389 71,897-27.6% 10.0% Pharmaceutical & Medicine Mfg. 25,508 42,960 46,877 83.8% 9.1% Medical Equipment & Supplies Mfg. 45,163 49,423 53,922 19.4% 9.1% Furniture & Related Product Mfg. 75,331 30,844 33,562-55.4% 8.8% Nonmetallic Mineral Product Mfg. 55,603 28,516 29,928-46.2% 5.0% Miscellaneous Mfg. 40,108 28,759 30,164-24.8% 4.9% Chemical Mfg. (excl. Pharmaceutical and 47,046 29,810 30,943-34.2% 3.8% Medicine Mfg.) Food Mfg. 183,116144,486 149,277 -18.5% 3.3%

TOTAL CALIFORNIA MFG.2,053,550 1,205,6641,243,329 -39.5% 3.1% Apparel, Textile, & Leather Mfg. 157,94972,826 74,466-52.9% 2.3% Transportation Equipment Mfg. 289,50197,081 97,988-66.2% 0.9% Wood & Paper Products Mfg. 91,097 42,155 42,358-53.5% 0.5% Plastics & Rubber Products Mfg. 66,623 43,122 43,206-35.1% 0.2% Primary Metal Mfg. 31,956 18,669 18,462-42.2% -1.1% Computer & Electronic Product Mfg. 523,865295,532 287,545 -45.1% -2.7% Printing & Related Support Activities 91,187 44,770 41,758-54.2% -6.7% Petroleum & Coal Products Mfg. 27,579 15,161 12,133-56.0% -20.0%

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

26 California’s Shifting Landscape: Manufacturing and the Innovation Ecosystem

As a result of globalization and other changes in the Following a trend similar to employment, the number production process, manufacturing in California as of manufacturing establishments increased in the late a whole has seen overall declines similar to national 1990s and then steadily declined until 2013. Also similar trends since 1990. Manufacturing employment in Cali- to long-term employment trends, in 2014 there were fornia today is 39.5 percent below 1990 levels. 23.9 percent fewer manufacturing establishments in California than in 1990. However, manufacturing is a highly diverse part of the economy, and three manufacturing sectors have In the recent time period (2010–2014), manufacturing seen steady job growth in the state over the long term employment has grown, although not as fast as employ- (1990–2014): Pharmaceutical & Medicine Manufacturing ment overall. Between 2010 and 2014, total manufactur- gained 21,369 jobs in the state, Beverage Manufac- ing employment expanded by 3.1 percent in the state. turing gained 15,903 jobs, and Medical Equipment & (Total state employment grew by 9.2 percent.) Employ- Supplies Manufacturing added 8,759 jobs. ment gains were seen in 14 of 18 manufacturing sectors.

California Manufacturing Establishment Change by Sector, 1990–2014

Establishments % Change % Change 1990 2010 2014 1990–2014 2010–2014 History 1990–2014 Beverage Mfg. 691 1,354 1,870 170.6% 38.1% Food Mfg. 3,557 3,351 3,601 1.2% 7.5% Petroleum & Coal Products Mfg. 246 220 228 -7.3% 3.6% Machinery Mfg. 3,470 2,627 2,663 -23.3% 1.4% Computer & Electronic Product Mfg. 5,730 4,608 4,640 -19.0% 0.7% Chemical Mfg. (excl. Pharmaceutical and 1,191 1,216 1,216 2.1% 0.0% Medicine Mfg.) Medical Equipment & Supplies Mfg. 1,928 1,657 1,638 -15.0% -1.1%

TOTAL CALIFORNIA MFG. 51,767 40,532 39,389 -23.9% -2.8% Pharmaceutical & Medicine Mfg. 264 438 424 60.6% -3.2% Fabricated Metal Product Mfg. 7,698 6,341 6,126 -20.4% -3.4% Miscellaneous Mfg. 2,191 2,176 2,096 -4.3% -3.7% Plastics &Rubber Products Mfg. 1,751 1,258 1,192 -31.9% -5.2% Transportation Equipment Mfg. 2,074 1,612 1,519 -26.8% -5.8% Wood & Paper Products Mfg. 1,987 1,484 1,379 -30.6% -7.1% Printing & Related Support Activities 6,480 3,557 3,263 -49.6% -8.3% Nonmetallic Mineral Product Mfg. 1,512 1,302 1,164 -23.0% -10.6% Apparel, Textile, & Leather Mfg. 6,598 4,456 3,922 -40.6% -12.0% Primary Metal Mfg. 656 578 501 -23.6% -13.3% Furniture & Related Product Mfg. 3,743 2,297 1,947 -48.0% -15.2%

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

27 Reinventing Manufacturing

Manufacturing Establishments & Employment in Total vs. Manufacturing Employment Growth in California, 1990–2014 California, 2010–2014

Establishments Employment 110 Total Employment 60,000 2,500,000 Manufacturing Employment 108 50,000 2,000,000 40,000 1,500,000 106 30,000 1,000,000 104 20,000 500,000 10,000 102 0 0 100

Indexed to Employment Levels in 2010 2010 2011 2012 2013 2014 Data Source: Quarterly Census of Employment & Wages, California EDD Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute Analysis: Bay Area Council Economic Institute

job gains in California. By contrast, the other two sectors Growth in the Recent Time (Fabricated Metal Manufacturing and Machinery Manu- Period, 2010–2014 facturing) experienced long-term job losses between 1990 and 2014, and the jobs added since 2010 are a Since hitting a low in 2010, overall employment start at recovery from those losses. in California has grown 9.2 percent through 2014. Manufacturing employment as a whole expanded In terms of employment, within Fabricated Metal 3.1 percent over the same period, with a significant Manufacturing, Machine Shops constituted the largest number of sectors showing promising gains. Between subsector with 43,544 jobs in 2014. Machine Shops also 2010 and 2014, the following five manufacturing sectors accounted for nearly 40 percent of the sector’s recent met or exceeded California’s overall rate of growth: employment growth, having gained 5,572 jobs between 2010 and 2014, and this subsector’s 2014 employment Beverage Manufacturing, +19.9 percent, +8,295 jobs level was its highest since 2008. Pharmaceutical & Medicine Manufacturing, +9.1 percent, +3,917 jobs In terms of establishments, only one subsector within Fabricated Metal Manufacturing witnessed growth in Medical Equipment & Supplies Manufacturing, the number of firms since 2010: Spring & Wire Product +9.1 percent, +4,499 jobs Manufacturing. Fabricated Metal Manufacturing, +12.6 percent, With over 70,000 jobs in 2014, Machinery Manufactur- +14,387 jobs ing accounted for 5.8 percent of California’s manufac- Machinery Manufacturing, +10.0 percent, turing employment. In 2014, the two largest subsec- +6,508 jobs tors— Industrial Machinery Manufacturing and Other General Purpose Machinery Manufacturing—together Of those five sectors, the growth in the first three accounted for 42.2 percent of Machinery Manufacturing (Beverage Manufacturing, Pharmaceutical & Medicine sector employment, with 30,349 jobs, and 40.3 percent Manufacturing, and Medical Equipment & Supplies of Machinery Manufacturing sector establishments, with Manufacturing) also represents long-term (1990–2014) 1,074 establishments.

28 California’s Shifting Landscape: Manufacturing and the Innovation Ecosystem

California Fabricated Metal Manufacturing Employment, 1990–2014

180,000 Cutlery & Handtool Mfg. 160,000 Hardware Mfg. 140,000 Spring & Wire Product Mfg. 120,000 Boiler, Tank, & Shipping Container Mfg. 100,000 Forging & Stamping 80,000 Coating, Engraving, Heat Treating, & Allied Activities 60,000 Other Fabricated Metal Product Mfg. 40,000 Architectural & Structural Metals Mfg. 20,000 Machine Shops; Turned Product; & Screw, Nut, & Bolt Mfg. 0

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

California Fabricated Metal Manufacturing Establishments, 1990–2014

9,000 Hardware Mfg. 8,000 Spring & Wire Product Mfg. 7,000 Boiler, Tank, & Shipping Container Mfg. 6,000 Cutlery & Handtool Mfg. 5,000 Forging & Stamping

4,000 Other Fabricated Metal Product Mfg.

3,000 Coating, Engraving, Heat Treating, & Allied Activities 2,000 Architectural & Structural Metals Mfg. 1,000 Machine Shops; Turned Product; & Screw, Nut, & Bolt Mfg. 0

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

29 Reinventing Manufacturing

California Machinery Manufacturing Employment, 1990–2014

120,000 Ventilation, Heating, Air-Conditioning, & Commercial Refrigeration 100,000 Equipment Mfg. Engine, Turbine, & Power Transmission Equipment Mfg. 80,000 Agriculture, Construction, & Mining Machinery Mfg. 60,000 Commercial & Service Industry Machinery Mfg. 40,000 Metalworking Machinery Mfg.

Industrial Machinery Mfg. 20,000 Other General Purpose Machinery Mfg. 0

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

California Machinery Manufacturing Establishments, 1990–2014

4,000 Engine, Turbine, & Power Transmission 3,500 Equipment Mfg.

Ventilation, Heating, Air-Conditioning, 3,000 & Commercial Refrigeration Equipment Mfg. 2,500 Agriculture, Construction, & Mining Machinery Mfg. 2,000 Commercial & Service Industry 1,500 Machinery Mfg.

Industrial Machinery Mfg. 1,000 Other General Purpose Machinery Mfg. 500 Metalworking Machinery Mfg. 0

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

30 California’s Shifting Landscape: Manufacturing and the Innovation Ecosystem

Wineries drove much of that job growth within the Growth in the Long Term, sector, expanding by 121.3 percent between 1990 and 1990–2014 2014. Employment in Breweries was robust, expanding by 43.8 percent over the 1990–2014 period. Since 1990, Pharmaceutical & Medicine Manufacturing has witnessed the strongest employment growth of any The Wineries, Breweries and Soft Drink & Ice Manufac- manufacturing sector in California. From 1990 to 2014, turing subsectors together saw establishment growth jobs expanded by 83.8 percent, while the state’s total between 1990 and 2014, and all three subsectors expe- manufacturing employment declined by 39.5 percent. rienced significant establishment growth since 2010.

Within this sector, the Pharmaceutical Preparation Though still a relatively small share of overall estab- subsector accounted for the largest employment share lishments in Beverage Manufacturing, the number of with 33,482 jobs in 2014 and 71.4 percent of Phar- Breweries grew from 22 in 1990 to 169 in 2014, with maceutical & Medicine Manufacturing employment in the fastest growth occurring since 2010 with an increase California. Between 1990 and 2014, Pharmaceutical from 37 establishments to the 169 total. Preparation jobs expanded by 85.5 percent. During the same period, employment grew by 203.0 percent in Since 1990, employment in Medical Equipment & In-Vitro Diagnostic Substance Manufacturing (with a net Supplies Manufacturing increased by 19.4 percent, gain of 4,164 jobs) and 130.4 percent in Medicinal & peaking in 2014 with 53,922 jobs. This growth Botanical Manufacturing (with a net gain of 2,497 jobs). was driven by the Surgical & Medical Instrument Only Biological Product Manufacturing experienced job Manufacturing subsector, which expanded by 61.9 losses, with employment declining by 20.7 percent since percent, with a net gain of 9,852 jobs between 1990 1990. (In comparison, all four subsectors experienced and 2014. Dental Laboratories were not far behind growth in the recent time period from 2010–2014, with however, expanding by 57.7 percent with a net gain of Medicinal & Botanical Manufacturing showing the most 3,098 jobs. In contrast, employment in two of the sub- significant gains, expanding by 88.9 percent.) sectors—Surgical Appliance & Supplies Manufacturing and Ophthalmic Goods Manufacturing—contracted by In terms of establishment growth, Pharmaceutical & 6.8 and 33.4 percent respectively. Medicine Manufacturing firms increased in number by 60.6 percent between 1990 and 2014. Pharmaceuti- While Dental Laboratories made up 54.2 percent of the cal Preparation was responsible for 70.0 percent of 1,638 establishments in Medical Equipment & Supplies this growth, expanding by 89.6 percent and adding Manufacturing in 2014, establishment growth in the 112 establishments. The number of firms in Medicinal sector since 1990 was driven by the Surgical & Medical & Botanical Manufacturing reached an all-time high in Instrument Manufacturing subsector, which expanded 2014, expanding by 115.4 percent between 1990 and by 13.8 percent between 1990 and 2014, with a net 2014 to a total of 84 manufacturing establishments. gain of 33 establishments. (The number of Dental Laboratory establishments contracted by 19.8 percent Second only to Pharmaceutical & Medical Manufactur- between 1990 and 2014.) ing, California’s employment in Beverage Manufacturing increased by 46.6 percent in the long term, 1990–2014.

31 Reinventing Manufacturing

California Pharmaceutical & Medicine Manufacturing Employment, 1990–2014

50,000

45,000

40,000 Biological Product (except Diagnostic) Mfg. 35,000

30,000 Medicinal & Botanical Mfg. 25,000

20,000 In-Vitro Diagnostic Substance Mfg. 15,000

10,000 Pharmaceutical Preparation Mfg. 5,000

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

California Pharmaceutical & Medicine Manufacturing Establishments, 1990–2014

500

450

400 Biological Product (except Diagnostic) Mfg. 350

300 In-Vitro Diagnostic Substance Mfg.

250

200 Medicinal & Botanical Mfg.

150 Pharmaceutical Preparation Mfg. 100

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

32 California’s Shifting Landscape: Manufacturing and the Innovation Ecosystem

California Beverage Manufacturing Employment, 1990–2014

60,000

50,000 Distilleries

40,000 Breweries

30,000

Soft Drink & Ice Manufacturing 20,000

Wineries 10,000

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

California Beverage Manufacturing Establishments, 1990–2014

2,000

1,800

1,600 Distilleries

1,400

1,200 Breweries

1,000

800 Soft Drink & Ice Manufacturing

600

400 Wineries

200

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

33 Reinventing Manufacturing

California Medical Equipment & Supplies Manufacturing Employment, 1990–2014

60,000

Dental Laboratories 50,000

40,000 Ophthalmic Goods Mfg.

30,000 Dental Equipment & Supplies Mfg.

20,000 Surgical Appliance & Supplies Mfg.

10,000 Surgical & Medical Instrument Mfg.

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

California Medical Equipment & Supplies Manufacturing Establishments, 1990–2014

2,500

Ophthalmic Goods Mfg. 2,000

Dental Equipment & Supplies Mfg. 1,500 Surgical & Medical Instrument Mfg.

1,000 Surgical Appliance & Supplies Mfg.

500 Dental Laboratories

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

34 California Manufacturing Highlights

Edwards Lifesciences Finelite Irvine-based Edwards Lifesciences is the global Headquartered in Union City, Finelite focuses on leader in the science of heart valves and blood flow the design and manufacture of high-performance, monitoring. More than 300,000 valve replacements environmentally sustainable LED and fluorescent are performed worldwide each year through open- lighting systems for office, healthcare, and educational heart surgery, utilizing either synthetic tissue valves or facilities. Its customers range from firms like Google, mechanical valves—many manufactured by Edwards Verizon, and Dell, to universities such as MIT, Stanford, Lifesciences. and Yale. Finelite’s 182,000 square foot manufacturing facility is capable of assembling over 20,000 linear feet Since its beginnings in Orange County more than of lighting fixtures per day. Operating in California for 50 years ago, Edwards Lifesciences has grown into 24 years, the company taps into technologies created a global company with a presence in approximately in Silicon Valley and collaborates with the California 100 countries and 8,500 employees worldwide. Its Energy Commission to develop lighting products to domestic manufacturing locations include facilities in meet new efficiency standards. Irvine and in Draper, Utah. The company has several other global locations in the Dominican Republic, The company employs 270 people in Union City and Puerto Rico, Singapore, and Switzerland. has over 1,000 California employees spread across a metal fabricator operation in Los Angeles and a high- DAQRI speed painting location in Livermore. Holding joint patents with the California Lighting Technology Center Los Angeles-based startup DAQRI is applying its digital at the University of California, Davis, in 2011, Finelite sensing and augmented reality products in industrial created several application guides to show how to cut applications to improve training and quality control. energy usage in half without compromising lighting DAQRI’s “smart helmet”—which utilizes a transparent quality—solutions that enhance productivity and move visor and special lenses that serve as a display, along toward net zero energy use. with an array of cameras and sensors that help users navigate and gather information about their environ- Keystone Engineering ment—is being used to empower manufacturing workers, oil rig employees, firefighters, and others with Keystone Engineering was founded in 1907 as one access to real-time metrics and instructions without the of the first companies in Los Angeles to offer weld- need for a tablet or monitor. ing services. Today, the company employs 42 people and has evolved into a world leader in the design and Cepheid fabrication of engineered products used in critical aerospace and defense applications. Keystone designs and Sunnyvale-based Cepheid, a fast-growing medical produces lightweight propellant and pressure storage diagnostic company with roots at UC Berkeley, tanks, as well as unique fabrication and design tech- develops products that can rapidly test for nologies for propellant storage. These products are tuberculosis, socially transmitted diseases, influenza used in the International Space Station, satellites, sub- and specific types of cancer. With more than 1,700 orbital unmanned aerial vehicles, and in other space employees, it manufactures in Sunnyvale, Lodi and and stratospheric explorations. With the expansion of Solna, Sweden. Production is expanding in Lodi, where its 57,000 square foot Long Beach facility, Keystone is the company plans to grow its workforce from 230 to growing to meet customer needs for the new genera- approximately 500 in the next few years. tion of spacecraft. Wing Inflatables beach landings. They are also used by the National Oceanic and Atmospheric Administration (NOAA) Since the early 1990s, Arcata-based Wing Inflatables to rescue whales and by the National Air and Space has manufactured inflatable boats and watercraft Administration (NASA) to recover space capsules. sponsons for customers ranging from the U.S. military to commercial marine operations. (A sponson projects Today, Wing Inflatables is recognized as the premium from the side of the boat to add greater stability to the quality fabricator of polyurethane inflatables in the watercraft.) Wing’s flagship line is its Combat Rubber world and has garnered more than $15 million in Raiding Crafts, inflatable rafts popular with the U.S. government contracts. Wing is also expanding its reach Department of Defense. These boats are used for Navy to Europe and Australia, and it has grown from 50 SEAL operations, Air Force water rescues, and Army employees in July 2013 to more than 130 currently.

SPOTLIGHT Tesla: Growing a Localized Supply Chain In 2010, when General Motors and Toyota closed a permanent home in Newark that can accommodate New United Motor Manufacturing Inc. (NUMMI), their its growth. At full volume, Futuris plans to employ 300 automotive joint venture in Fremont, California lost its people in its plant. Eighty percent of its products are last remaining auto manufacturing plant. The closure manufactured locally for Tesla. not only resulted in job losses at those specific plants but also at the firms supplying NUMMI. Futuris, which is Australia-based, is not the only Tesla supplier to locate nearby. Asteelflash, based in That same year, Tesla purchased the Fremont factory Fremont, creates motherboards for the car console and now produces more than 35,000 electric vehicles systems. Eclipse Automation, also based in Fremont, per year there. The company has grown to 6,500 supplies custom automated manufacturing equipment employees in California today, with the majority located to Tesla. at the Fremont factory. Tesla also houses workers in its corporate headquarters in Palo Alto, in a specialized The City of Fremont aims to attract more production shop in Lathrop in the Central Valley, and at manufacturing jobs and companies through the design studios outside of Los Angeles in Hawthorne. creation of an innovation district around the new Warm Springs BART station, with Tesla as its major tenant. As the company continues to grow—it has ambitions to Plans call for the transformation of 850 acres near produce 500,000 cars per year by 2020—it has made an the existing factory with as many as 4,000 housing effort to develop its supply chain close to the Fremont units and the potential to create 12,000 jobs in new plant, even offering space to suppliers within the Tesla commercial and industrial spaces. Fremont facility. As a result, a dynamic automotive supply chain has developed in the Bay Area—where The ability for Tesla to procure parts for its cars locally previously many of these manufacturing activities had not only reduces shipping costs and time, but also been thought to have left California forever. allows Tesla to work closely with suppliers to design products efficiently and to fix issues that may arise. For example, Futuris Automotive, which supplies Tesla This “near-shoring” of supply chains has become interior components such as seats, operates out of a a key component in building localized industry 160,000 square foot facility in Newark, just 15 minutes clusters. Tesla’s example shows that a large anchor from Tesla’s Fremont factory. Originally operating manufacturing facility can attract other producers and inside the automaker’s Fremont plant, Futuris found drive the development of new clusters. California’s Shifting Landscape: Manufacturing and the Innovation Ecosystem

Manufacturing Wages California Average Annual Earnings Trends in California Total vs. Manufacturing Wages (Inflation Adjusted)

While total manufacturing employment in 2014 was 150 All Industries 39.5 percent below where it was in 1990, inflation- Manufacturing adjusted average annual wages were 42.0 percent 90 140 19

higher. Between 1990 and 2014, average annual in

incomes in manufacturing increased at a faster rate ls 130 than the economy as a whole, where incomes rose by ve Le 23.6 percent. This suggests that the structural shifts that 120 ge have taken place in manufacturing over the last several decades have resulted in the need for fewer but more Wa 110 to highly qualified workers. d xe 100 California’s manufacturing jobs offer solid incomes. de In As a whole, average annual incomes of $80,000 90 were reported in manufacturing in 2014. With 2014 average annual incomes across the economy ranging from $20,000 in Accommodation & Food Services to Data Source: Quarterly Census of Employment & Wages, California EDD $133,000 in Information, manufacturing jobs tend to Analysis: Bay Area Council Economic Institute fall at the upper end of the wage spectrum.

California Average Annual Earnings by Industry, 2014

$160,000 $120,000

$80,000

$40,000

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

37 Reinventing Manufacturing

Within manufacturing, 2014 average annual incomes varied widely. At $157,000, Pharmaceutical & Medicine Manufacturing reported the highest average annual incomes. Computer & Electronic Product Manufacturing and Petroleum & Coal Products Manufacturing followed with incomes just under $140,000. Also exceeding the $80,000 average annual income level for all California manufacturing jobs in 2014 were Transportation Equip- ment Manufacturing, Machinery Manufacturing, and Medical Equipment & Supplies Manufacturing.

California Average Annual Earnings by Manufacturing Sector, 2014

$160,000

$120,000

$80,000

$40,000

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

38 INSIGHT The Future of Making Things Lawrence Lee, Tolga Kurtoglu, and Janos Veres, PARC, a Xerox company

Breakthrough innovations seemingly burst into existence without warning. But on closer examination, we can see that they often occur when a new technology satisfies a fundamental human desire, such as creation, Make connection, or personalization, in an entirely new way. New digital Blogs and Twitter enabled individuals to communicate manufacturing with mass audiences. Instagram connected people technologies and processes across time and space through pictures. Amazon and eBay helped long-tail buyers and sellers find each other. We are seeing similar revolutions in healthcare, Connect education, and transportation, enabled by mobile and Design social technologies that transform passive consumers New methods for New tools for into active participants. connecting people and design verification manufacturing, and process Now digital technologies are making their impact virtualizing value planning networks in manufacturing, placing us at the dawn of a new era of consumer participation in how things are made. Early examples include the rise of production marketplaces and new crowdfunding models that not only provide seed funding but also allow designers to test demand ahead of investment. We have also seen PARC is investing in this vision of The Future of Making the emergence of manufacturing services companies Things at the intersection of three areas: Make, Design, and incubators that simplify the complexities of and Connect. offshore manufacturing. In the area of Make, it has been working to combine Coming soon are dramatic advances in the printed electronics capability with 3D printing to create democratization of technologies involved in creation functional objects with embedded sensors and compu- and production. The next generation of design tational components. Expanding additive manufactur- tools will allow consumers to create completely new ing beyond shapes and colors is an exciting challenge, products, not just customize them. The future of opening up on-demand fabrication of complex prod- product development will be in the form of ad-hoc ucts. New types of raw materials, such as electronic value networks that come together on a project-by- materials and nanomaterials are needed, coupled with project basis, similar to how films are financed and process technologies that allow us to manipulate them produced in Hollywood. Driving these transformations and deposit them accurately. One research direction will be advances in the underlying infrastructure of involves printing with silicon chiplets, thus providing the digital manufacturing ecosystem, such as process highly sophisticated building blocks for printing. Addi- modeling, expertise identification, risk analysis, “APIs” tive manufacturing—which is still seen today mainly as that connect contract manufacturers in virtualized a prototyping technology—will engage us as creators supply chains, and radically simpler design tools that of personalized products in terms of both form factor do not require expertise in 3D modeling. and functionality. Ultimately these techniques will take additive manufac- design approaches that will start down the path to a turing to a new level, enabling the integration of not flexible, ever-changing manufacturing ecosystem that only electronics, but also optics, actuation and fluidics can be connected and configured in new ways. towards “integrated objects.” The impact of this is of similar magnitude to what it was with integrated The Future of Making Things represents a break- circuits. Form and functionality will become seamless, through because it is not just about creating new enabling high levels of system integration in confined technologies. At its core, The Future of Making Things or distributed spaces, entirely new form factors, and is about empowering people to use their imagination freedom of design. to create things that serve their individual needs. We need to include social scientists on our innova- In area of Design, PARC has been modeling rapid tion teams, to help us understand unexpressed human prototyping and production capabilities of machine desires, and designers and usability experts to help shops and developing a reasoning engine that can optimize the user experience. We also need to include take a 3D model and automatically create a produc- end users in our innovation process as we test and tion “recipe” including process steps, allocation of iterate in an agile manner. consumables, and machine execution codes that normally would require an expert technician with We as a community of leaders in digital manufactur- years of experience. PARC is also creating analogous ing research, technology, services, and policy will need capabilities in reasoning for 3D printing and additive to work together in a collaborative, learning-based manufacturing processes. process in order to realize all the components of this vision of The Future of Making Things. This will payoff In the area of Connect, PARC has been working to with far-reaching benefits for our society, including combine automated planning with distributed con- new job creation in personalized commerce and local trol in order to create reconfigurable production and manufacturing, reduced greenhouse gases from supply distribution systems that can truly enable manufactur- chain related transportation, and new efficiencies and ing to order, not to forecast. Going forward, it will be reduced waste from improved cradle-to-grave product developing new process technologies using integrated and packaging design. California’s Shifting Landscape: Manufacturing and the Innovation Ecosystem

Regional Manufacturing Strengths Manufacturing is distributed across the state, with Manufacturing accounted for 23,460 Central Coast distinctive regional clustering. Although manufacturing jobs in 2014 and 4.1 percent of total employment in clusters are concentrated in urban centers, especially in the region. Southern California, there are also pockets of producers in the state’s rural areas. The eight regions defined The 21,145 manufacturing jobs in the Sacramento in this analysis demonstrate distinct manufacturing Area accounted for only 2.4 percent of jobs in the re- strengths and trends, and each has evolved in a gion in 2014—the lowest regional share in the state. different way since 1990. In 2014, manufacturing accounted for 13,491 jobs in The Los Angeles Area is California’s largest manu- the Northern California region, or 4.0 percent of the facturing hub. With 478,919 manufacturing jobs, region’s employment. the region accounted for 38.5 percent of the state’s For each of the eight regions, the California Manufac- manufacturing employment and 8.4 percent of the turing Regional Clusters analysis in Part Two provides Los Angeles Area’s total employment in 2014. 1990–2014 data on employment and establishments in The Bay Area is a leading global hub of technology 18 manufacturing sectors. innovation. Although it is one of the most expensive regions of the state, many manufacturers locate Manufacturing Employment and Establishments in there because they work closely with the region’s California by Region, 2014 technology companies. The Bay Area’s 293,847 manufacturing jobs made up 23.6 percent of manufacturing employment in California and Employment Establishments 8.4 percent of Bay Area employment in 2014. % % Change Change Orange County is the third largest manufacturing 2010– 2010– 2014 2014 region in California, with 141,810 manufacturing Los Angeles Area 478,919 0.7% 16,660 -5.7% jobs in 2014. It also has the highest concentration Bay Area 293,847 4.8% 8,257 -0.6% of manufacturing employment in the state, with Orange County 141,810 5.2% 4,857 -2.8% manufacturing jobs accounting for 10 percent of Central Valley 97,037 10.9% 2,743 0.3% the region’s employment. San Diego Area 84,615 2.6% 3,096 1.6% California’s Central Valley is the heartland of the state’s Central Coast 23,460 19.0% 1,538 7.7% food production activity. Clustered around the cities of Sacramento Area 21,145 12.0% 1,386 -3.9% Bakersfield, Fresno, Modesto, and Stockton, its manu- Northern California 13,491 16.2% 976 -1.9% facturing sector accounted for 98,038 jobs in 2014 CALIFORNIA TOTAL* 1,243,329 3.1% 39,389 2.8% and 6.9 percent of total employment in the region. *Totals differ from the sum of the columns due to regional suppression. Data Source: Quarterly Census of Employment & Wages, California EDD Manufacturing accounted for 6.2 percent of total Analysis: Bay Area Council Economic Institute employment in the San Diego Area in 2014. Of the 84,615 manufacturing jobs in the region, a large portion are defense related.

41 INSIGHT Next-Generation Technologies Drive Silicon Valley Manufacturing David Wahl and Charlie Thayer, Jabil

Silicon Valley, the heart of manufacturing? Yes. Jabil’s enable novel products and new markets. This deep new Blue Sky Center in San Jose facilitates a new era fundamental knowledge of materials science leads of manufacturing innovation with the Valley’s bright- to next-generation technologies that Jabil utilizes, est minds. Jabil provides manufacturing services for through local collaboration as well as recruiting, to a wide range of industries in over 100 locations in 26 accelerate innovation for manufacturing customers. countries. It considered several global locations for its Robotics, nanotechnology and materials science are flagship Blue Sky Center before choosing San Jose. capturing the interests of new top-tier graduates who Many options were available including Jabil’s head- previously would have been reluctant to pursue careers quarters in St. Petersburg, Florida. With its large Asia in manufacturing. Now Jabil is strategically placed to footprint, Jabil looked at locations like Singapore, recruit from the world’s brightest talent pool. Hong Kong, Shanghai and Taipei. Other innovation hubs in the US and Europe were also considered. In Advances in automation have moved manufacturing the end, Silicon Valley won out based on its concen- into a new era, reducing dependence on manual labor tration of the best universities and research institutes and ushering in a fresher, sleeker system that is thriving in the world and R&D investments by Fortune 100 in California’s high-tech areas. Jabil’s Blue Sky Center companies, not to mention its ongoing leadership in is a strategically positioned repository of high-tech start-up activities. manufacturing solutions for Silicon Valley’s innovative customers. Put your passport away, manufacturing is The Bay Area is world-famous for its heavyweight right here in San Jose. high-tech companies and venture capital funded start- ups. Many of its household name software companies are adding hardware and lifestyle products to their cache and are in need of a reliable local manufacturing partner. Entrepreneurial start-ups that exploit the latest technology trends need a manufacturer that can meet them on their level—nimbly developing advanced assembly processes and producing their futuristic products at start-up speeds. Jabil’s San Jose hub seeks to revolutionize Silicon Valley’s hardware manufacturing—everything from wearables and mobile health to autonomous cars and delivery drones.

Research and innovation engineering is critical to the manufacturing revolution. The Bay Area’s renowned universities—Stanford, Berkeley, Santa Clara, and UCSF Medical as well as distinguished research institutes Lawrence Livermore, NASA Ames, SRI International and PARC—pioneer technology research that will INSIGHT From Light Rail to Locomotives: Heavy Manufacturing by Siemens in Sacramento Kirk Klug, Siemens Industry, Inc.

Siemens Rolling Stock, part of the Siemens Mobility Division, is a global leader in the provision of railway and light rail rolling stock and services, manufacturing across the full spectrum of rolling stock including commuter and regional passenger trains, light rail and streetcars, metros, locomotives, passenger coaches and high-speed trainsets.

Contrary to the common belief that California no longer hosts heavy manufacturing, Siemens’ Sacramento plant serves as the company’s North American manufacturing headquarters, with capabilities spanning design, engineering, testing, carshells, bogies (wheelsets), subassembly and final assembly. Siemens has been manufacturing in Sacramento for more than 30 years. Committed to environmentally friendly processes, it uses solar energy to power more than 80% of its facility.

Since opening its doors, the plant’s manufacturing portfolio has expanded from a core business building 1,300 light rail vehicles used in 17 cities in the U.S. and Canada, to include the production of streetcars and passenger rail locomotives and trainsets (650 foot long trains consisting of eight cars) for customers across North America. More than 850 people are employed at the 583,000 square foot facility, on 60 acres of land, which includes ready-to-build acres for a high speed rail center of excellence. Reinventing Manufacturing

“unconnected” can enable entirely new products such California’s as smart grid and smart agriculture (improving resource Innovation Ecosystem management and food safety). The generation of vast new sources of data is also creating new service models California is not just home to a large and diverse manu- for producers like Tesla that collect data on their prod- facturing base; the state is also home to technology ucts after the point of sale in order to make ongoing companies and research labs that are developing the improvements. Advances in data analytics have also tools for advancing any production process. The state’s enabled the rapid growth in quantitative biosciences. robust research base includes national labs, research universities and private research centers that are further- The transformative Industrial Internet of Things (IIoT) ing advances in materials and technology and working wave has been led by industry majors like GE, IBM and with manufacturers to improve their products and Cisco, but early-stage companies are critically important, process efficiencies. For example, labs and universities and the financial community is increasing its investment can support manufacturers by providing access to costly in industrial tech companies. Between 2010 and 2015, equipment and facilities; taking advantage of modeling Internet of Things (IoT) start-ups overall attracted $7.4 and simulation capabilities at a lab or university can help billion in venture funding globally, according to CB a producer speed up prototyping and testing phases of Insights. With year-over-year growth in every year in new products. that period except 2013, global yearly investment in Industrial Internet of Things start-ups rose from $182 The digitization of the economy includes the application million in 2011 to $1.045 billion in 2015, with an 83% of information and communications technology in the increase from 2014 to 2015 alone. While covering a manufacturing arena—the so-called Industrial Internet. range of technologies, funding rounds in recent years Collecting and analyzing data from production processes have particularly focused on IIoT infrastructure, RFID- can improve efficiencies across multiple measures (e.g., enabled supply chain sensors, and industrial robotics.13 materials, time, energy) and can improve quality control. In addition to process improvement, embedding tech- The table on the following pages shows examples nology such as communications, sensors, artificial intel- of companies providing the tools for advancing ligence, and analytics into products that were previously production processes.

44 California’s Shifting Landscape: Manufacturing and the Innovation Ecosystem

Selected Companies Supporting Production Process Advancement

Company Location Industry Description Adept Technology, Inc. designs, manufactures, and markets robots for the electronics, telecommunications, appliances, pharmaceuticals, food Adept Robotics & Pleasanton processing, and automotive components industries. The company also Technology Software designs the software to control manufacturing robots and set up automated assembly protocols. Autodesk provides 17 products for the design of industrial equipment, including a complete factory design suite. Autodesk is best known for Computer Aided AutoCAD, but now develops a broad range of software for design, Autodesk San Rafael Design (CAD) engineering, and entertainment, as well as a line of software for consumers. Software Autodesk’s digital prototyping software is used in the manufacturing industry to visualize, simulate, and analyze real-world performance using a digital model during the design process. CAD Design Services Inc. (CDS) provides standard and custom CAD and CAD Design Industrial Design CAM software for physical layout, full 3D electrical and thermal model gener- Santa Clara Services Inc. Services ation, and manufacturing of all types of semiconductor packages and printed circuit boards for any technology on any material, including lead frames. Cisco Systems installs a “Connected Factory” architecture to streamline the Networking movement of information between plants, branch IT networks, and head- Cisco San Jose Equipment quarters by connecting all the IP ready devices, sensors, and robotics across a complete manufacturing operation. E2open, Inc. is a provider of cloud-based, on-demand software that monitors Supply Chain a manufacturing supply chain. The application reports shortages and quality E2open Foster City Management failures, along with potential alternatives, to a central dashboard for easy headquarters review. Additive The FATHOM portfolio includes professional 3D printing services, manu- FATHOM Oakland Manufacturing facturing systems, and prototyping which feature RTV/silicone molding and Devices urethane casting, low volume CNC machining, injection molding, and more. Industrial General Electric is a transnational conglomerate corporation that provides Internet Data a wide range of services in the home appliances, financial services, medical General Electric Sunnyvale Systems & device, life sciences, pharmaceutical, automotive, software development and Analytics engineering industries. Google offers its cloud office suite (Google for Work) as a tool for manufac- Cloud-based turers to collaborate on new designs and manage a supply chain in multiple Mountain Design and Google countries. The Google App Engine also has manufacturing applications, View Collaboration allowing users to design process-specific software to help them adapt quickly Tools to new product needs. Supply Chain HP offers software and data storage systems and software for supply chain HP Palo Alto Management monitoring and management. HP also offers data services to keep a manu- Software facturer in compliance with the laws effecting each part of its supply chain. Industrial IBM provides analytics solutions for manufacturers in five main focus areas: Internet Data sales and operations planning, predictive maintenance, demand planning IBM San Jose Systems & and customer analytics, smarter supply chains, and streamlined sales Analytics compensation processes. Keysight Technologies is a leading electronic measurement company, focus- ing on the transformation of the measurement experience through innovation in wireless, modular, and software solutions. Keysight provides electronic Keysight Electronic Santa Rosa measurement instruments and systems and related software, as well as Technologies Measurement software design tools and services used in the design, development, manufacture, installation, deployment and operation of electronic equipment. (Keysight Technologies Inc. was separated from Agilent Technology in 2014.)

45 Reinventing Manufacturing

Company Location Industry Description Lawrence Livermore National Laboratory (LLNL) was established by the Lawrence University of California as a research and development institution. Lawrence Scientific Livermore Livermore National Security, LLC assumed management of the Laboratory in Livermore Research & National 2007. LLNL focuses on research and development advances in the biosecu- Development Laboratory rity, counterterrorism, defense, energy, intelligence, nonproliferation, and weapons industries. Nanometrics provides advanced, high-performance process control metrology and inspection systems used primarily in the fabrication of semiconductors and other solid-state devices. Nanometrics’ automated and integrated metrology systems measure critical dimensions, device structures, overlay Industrial Nanometrics, registration, topography and various thin film properties. Nanometrics’ Milpitas Machinery & Inc. systems enable advanced process control for device manufacturers and Equipment are deployed throughout the fabrication process, from front-end-of-line substrate manufacturing, to high-volume production of semiconductors and other devices, to advanced wafer-scale packaging applications, providing improved device yield at reduced manufacturing cycle time. Power Standards Lab (PSL) specializes in power quality testing and certification and is a global hub of engineering information about electric power measurement and immunity to electric power disturbances. Providing power quality testing both on site and in its lab, PSL certifies power quality instru- Power Industrial Alameda ments to make sure they use the same definitions and measurement tech- Standards Lab Equipment niques for various power quality parameters: sags/dips, swells, frequency, harmonics, flicker, etc. PSL tests semiconductor fabrication equipment for voltage sag immunity and offers recommendations on how to improve immunity as well. Production Robotics provides contract automation engineering, machining and manufacturing services to companies in the biotechnology, diagnostics, microsurgery, pharmaceutical packaging, food processing, electronics Production San Robotics manufacturing and automotive industries. In addition to engineering Robotics Leandro and development services, Production Robotics also provides contract fabrication, assembly, testing, packaging and shipping of electromechanical products and subassemblies. A leading supplier of systems for power generation and transmission as well as medical diagnosis, Siemens focuses on the areas of electrification, Industrial automation and digitalization. One of the world’s largest producers of Mountain Internet Data Siemens energy-efficient resource-saving technologies, Siemens provides products View Systems & and systems for industrial communication to ensure company-wide efficiency Analytics using integrated, high-performance data networks that can be implemented to meet extreme environmental requirements. Trio-Tech International offers test equipment and testing services to the microelectronics industry, particularly semiconductor testing and burn-in services. Besides the semiconductor industry, Tri-Tech also provides services to the avionics industry, defense sectors, medical industry, and Trio-Tech Testing Services Van Nuys research institutes, as well as OEM/ODM manufacturers. Tests performed International and Equipment include stabilization bake, thermal shock, temperature cycling, mechanical shock, constant acceleration, gross and fine leak tests, electrical testing, microprocessor equipment contract cleaning services, static and dynamic burn-in tests, reliability lab services and vibration testing.

46 California’s Shifting Landscape: Manufacturing and the Innovation Ecosystem

California’s patent registration growth relates closely Patent Activity to the state’s strong manufacturing activity. California Patents registered to California inventors represented ranks second (following Michigan) in the number of approximately 10 percent of total US patent registra- patent registrations in the category of Manufacturing, tions in 2013. A total of 36,193 patents were registered Assembling, & Treating. While overall patent registra- to primary inventors located in California; this number tions within California in this category declined by more has increased by a factor of four since 1990. Thirty-one than 40 percent between 2006 and 2009 (in line with a percent of those patents are registered in the Comput- broader downturn in patent activity), patent registrations ers, Data Processing, and Information Storage field, began to ramp back up starting in 2010. which has produced an average annual growth rate of 15.2 percent. This category includes computer hardware California’s patent activity is highly concentrated in the as well as code and methodology for data processing Bay Area. With 153,436 registered patents, or 61.3 and storage. Other sectors have also grown quickly, percent of all California patent activity, the Bay Area including Communications and Health, which have has registered more patents between 2004 and 2013 experienced annual growth rates of 13.5 percent and than all other regions combined. This large share of 9.4 percent, respectively. The number of Transportation/ patents in the Bay Area is due to the region’s specializa- Vehicles patents, another high growth area in manufac- tion in the largest seven patent categories in the state. turing, has also been rising. Together, these four catego- No other single region has registered more than half of ries made up nearly three-quarters of the state’s patent the patents in any category, but other regions do show activity in 2013. pockets of concentration.

Annual California Patent Registrations by Category, 1990–2013

40,000 Other Food, Plant & Animal Husbandry 35,000 Dispensing & Material Handling Furniture & Receptacles 30,000 Construction & Building Materials Transportation/Vehicles 25,000 Manufacturing, Assembling, & Treating Teaching & Amusement Devices 20,000 Chemical Processing Technologies Chemical & Organic 15,000 Compounds/Materials Measuring, Testing & Precision 10,000 Instruments Electricity & Heating/Cooling 5,000 Health Communications 0 Computers, Data Processing & Information Storage

Note: Patents are reported if the first named inventor was located in California. “Other” includes Apparel, Textiles & Body Adornment, Ammunition & Weapons, Nuclear Technology, and Superconducting Technology Data Source: US Patent and Trademark Office Analysis: Bay Area Council Economic Institute

47 Reinventing Manufacturing

While Southern California regions have a large number Central California and the Sacramento Area combine of patents in high-tech categories, they show relative to account for over one-quarter of all California patent strength in categories such as Furniture & Receptacles, activity in Food, Plant, & Animal Husbandry. Central Apparel & Textiles, Teaching & Amusement Devices, California also shows a concentration in Ammunition & and Construction & Building Materials. The Los Angeles Weapons, even though the region itself makes up less Area shows particular strength in furniture and apparel than 5 percent of California patent activity. Northern patents, with statewide shares of 41 percent and California and the Sacramento Area are notable for their 38 percent, respectively. The San Diego Area has activity in Dispensing & Material Handling. concentrations in Communications and Chemical & Organic Compounds, while Orange County has a high percentages of activity in Building Materials and Transportation/Vehicles.

Manufacturing, Assembling, & Treating Patent Registrations, 1990–2013: Top Ten States

4,000 Florida 3,500 Massachusetts

3,000 Texas

Connecticut 2,500 Pennsylvania 2,000 Illinois

1,500 New York

848 633 Ohio 1,000 759 792 810 777 603 553 696 715 661 620 550 487 510 504 672 605 523 491 512 566 543 479 California 500 Michigan 0

Note: Patents are reported if the first named inventor was located in each State. Data Source: US Patent and Trademark Office Analysis: Bay Area Council Economic Institute

48 California’s Shifting Landscape: Manufacturing and the Innovation Ecosystem

Regional Shares of California Patents by Technology Area, 2004–2013

Los Total Angeles San Diego Orange Central Sacramento Northern Patents Bay Area Area Area County California Area California Computers, Data Processing & Information Storage 71,622 76.0% 6.5% 5.8% 4.6% 4.3% 2.6% 0.2% Communications 50,261 60.4% 10.0% 16.6% 8.0% 3.3% 1.5% 0.3% Health 25,769 51.2% 18.2% 14.7% 11.2% 3.3% 1.2% 0.2% Electricity & Heating/Cooling 23,412 63.2% 14.1% 6.7% 8.4% 5.0% 2.2% 0.4% Chemical Processing Technologies 14,280 71.7% 11.1% 5.3% 5.2% 5.5% 1.1% 0.2% Measuring, Testing & Precision Instruments 20,755 59.6% 18.8% 8.0% 6.0% 5.9% 1.3% 0.3% Chemical & Organic Compounds/Materials 16,796 58.7% 12.8% 18.3% 5.1% 3.1% 1.9% 0.1% Manufacturing, Assembling, & Treating 6,114 43.3% 24.0% 8.7% 11.5% 8.7% 2.4% 1.4% Teaching & Amusement Devices 4,310 24.4% 31.1% 28.1% 9.3% 4.4% 1.8% 1.0% Construction & Building Materials 3,657 34.2% 24.6% 6.4% 22.8% 7.4% 3.4% 1.3% Transportation/Vehicles 3,649 20.2% 37.2% 12.3% 17.1% 8.9% 2.9% 1.3% Dispensing & Material Handling 2,859 29.2% 31.9% 11.1% 14.3% 8.0% 3.4% 2.1% Furniture & Receptacles 2,773 23.2% 41.2% 10.7% 14.8% 6.9% 2.1% 1.3% Food, Plant & Animal Husbandry 2,262 26.5% 23.0% 10.7% 10.9% 16.7%10.3% 1.9% Apparel, Textiles & Body Adornment 1,230 21.3% 38.4% 11.5% 17.2% 7.9% 3.0% 0.7% Ammunition & Weapons 441 17.2% 33.6% 5.7% 14.1% 25.4%1.1%2.9% Nuclear Technology 92 79.3% 3.3% 6.5% 5.4% 5.4% 0.0% 0.0% Superconducting Technology 25 40.0% 44.0% 0.0% 0.0% 16.0%0.0%0.0% Total percentage of patent registrations 250,307 61.3% 13.4% 10.7% 7.6% 4.6% 2.0% 0.4%

Note: Highlighted cells denote the three most concentrated technology categories in each region. Patent counts refer to all utility patents whose first-named inventor is located in each region. Data Source: US Patent and Trademark Office Analysis: Bay Area Council Economic Institute

49 INSIGHT Decoding the DNA for an Effective NDA Joshua Cohen, Wendel, Rosen, Black & Dean, LLP

Collaboration across industries in manufacturing sec- secret. When a company shares its secrets with a poten- tors creates opportunities for spurring innovation within tial partner without an NDA and a competitor obtains companies, industries and regional economies, but col- the secrets, even from an independent source, the laboration can also pose substantial risks. Enthusiastic courts are unlikely to enforce the company’s rights in a about new business opportunities, manufacturers often lawsuit against the competitor because the company’s begin sharing their proprietary information before taking failure to obtain an NDA from a potential partner will the necessary precautions. Just as one would not share be used as evidence that the company failed to make one’s social security number on a first date, manufac- “reasonable efforts” to secure its secret. turers need to be cautious about what they share with What Is in an NDA? potential business partners. Manufacturers need to be consistent. To protect its secrets, a company needs to obtain Most companies are familiar with non-disclosure agree- NDAs from everyone with access to the company’s infor- ments (NDAs), but unfortunately many companies sim- mation, including employees, existing business partners ply pull an NDA off the Internet—which is akin to buying and potential business partners. The company needs a wedding dress on Craig’s List: it isn’t going to fit. Still to be explicit. An NDA that provides that “Company B worse, companies often begin disclosing proprietary acknowledges that Company A’s widget testing process information before the NDA is fully executed. has economic value and is not generally known” is much stronger than a boilerplate NDA that merely provides Who Needs an NDA? Whether producing potato chips that “Company B acknowledges that Company A has or microchips, manufacturers often have trade secrets proprietary information that constitutes trade secrets.” that give them a competitive advantage. Customer If a potential partner is in the same industry, a manufac- lists, vendor lists, pricing, salaries, five-year business turer may want to include an anti-solicitation provision, plans and the techniques developed to manufacture which prevents the partner from actively poaching the products faster, cheaper and better than competitors company’s employees. The NDA should also require the are all proprietary information that companies want to potential business partner to return all proprietary infor- remain secret. mation to the company at the end of the partnership.

Under the Uniform Trade Secrets Act, there are two Finally, an NDA needs to have teeth. The NDA should prongs to a trade secret: include language saying that a potential breach could (1) the information must provide the owner with result in irreparable harm and that the company is en- independent economic value by not being generally titled to seek injunctive relief, i.e., it has the right to seek known to the public or those in the relevant immediate court intervention rather than wait months or industry; and years for a trial. The NDA should also identify the venue and jurisdiction (e.g., “the Los Angeles Superior Court”) (2) the owner must have taken reasonable efforts to where any dispute shall be resolved so valuable time is keep the information secret. not wasted arguing over the proper forum.

Sharing propriety information with a potential business Whether manufacturers are meeting with potential partner, a manufacturer exposes a company to two risks. investors, technology companies or vendors, they The obvious first risk is that the potential partner uses can benefit from developing an appropriate NDA and that information to compete or leaks that information ensuring that it is fully executed before sharing any to a competitor. The less obvious risk is that the partner proprietary information. fails to make reasonable efforts to keep the information Reinventing Manufacturing

Strengthening California’s Environment for Manufacturing

Long-standing notions about manufacturing in the US for jobs in business services and below 1.0 for retail are being upended as a result of technological advance trade.18 Every dollar in final sales of manufactured and changing cost factors globally. New technologies, products supports $1.37 in additional economic activ- such as 3D printing and other digital tools,14 are playing ity—more than double the multiplier effects for the growing roles in manufacturing and are pushing down retail and wholesale trade sectors.19 labor’s share of total production costs. As cost factors shift, manufacturers are beginning to move operations Manufacturers are responsible for approximately 70 closer to end markets,15 while others are moving back to percent of all research and development (R&D) con- the US due to intellectual property, quality, and time-to- ducted by private businesses in the US. R&D spend- market issues that are better controlled domestically. ing in manufacturing grew from 8 percent of sales in 2000 to 11 percent in 2008, and has remained Given stagnating household incomes nationally and relatively flat since.20 Over the period from 2000 producers’ concerns about skills shortages, manufactur- to 2008, 22 percent of manufacturing companies ing has become the focus of resurgent interest both reported product or process innovations compared because it is a source of middle-income jobs with career to only 8 percent of non-manufacturing companies.21 paths and because it has the potential to drive a new This concentration of R&D spending in manufacturing wave of innovation. Manufacturing is key to the strength is the backbone of the domestic innovation infrastruc- of the US economy for multiple reasons, including its ture, much of it occurring in high-technology sectors 12.1 percent share of gross domestic product in 2015,16 such as pharmaceuticals (23 percent of total private and its workforce of over 12.3 million.17 In addition to US R&D spending), aerospace (19 percent), and elec- its role in direct job creation, manufacturing has the tronic instruments (12 percent).22 following economic impacts: Manufacturing is the largest contributor to US ex- Manufacturing generates high levels of output and ports, with nearly $1.2 trillion exported in 2014. employment throughout the economy. Studies have Manufactured goods account for 74 percent of all US found that each manufacturing job creates more than goods exports and 51 percent of total exports.23 two additional jobs, compared to multipliers of 1.5

51 Reinventing Manufacturing

While California may not have a competitive advantage for all types of manufacturing, there are sectors that are Stimulate the well positioned to thrive in the state. Particular examples Commercialization of Research include the manufacturing of products that are time- sensitive and products such as foods and beverages that and Development through are location specific, as well as R&D-intensive products of an advanced technological nature. Cluster-Based Strategies

Manufacturing in California, ranging from food and Manufacturing has undergone multiple shifts over the beverages to technology products, is deeply integrated last 20 years, beginning with the movement of low- into the state’s innovation ecosystem. Often, early-stage value manufacturing processes to lower-cost locations. manufacturing will be located close to a company’s R&D In addition to the loss of many American manufacturing facility to allow industrial process managers to interact jobs, offshoring portions of the US manufacturing base with researchers as new products are developed and risks the related offshoring of innovation. Historically, modified. In other cases, producers stay competitive on the offshoring movement first shifted lower-end produc- the global market through their close partnerships with tion and later higher-value activities, including applied local technology companies and research centers. research and development. Over time, more R&D followed manufacturing to overseas locations, calling into As production factors shift, some manufacturers will look question the model where manufacturing is allowed to locate closer to their end markets or to improve their to leave but advanced R&D is presumed to remain a proximity to innovation hubs, supply chain networks, domestic strength. and labor pools. The cost of doing business—including regulatory compliance, land and infrastructure Critical components of the manufacturing ecosystem— availability, and access to capital and financial incen- including knowledge and skills, supply chain vendors, tives—will play a greater role in manufacturing location tools, and production equipment—have been lost in decisions as well, especially as firms look for critical industries that have undergone extensive offshoring. cost advantages. Because of this movement overseas, many high-tech products can no longer be manufactured in the US,24 In California and across the nation, advances in auto- such as compact fluorescent lighting; LCD displays for mation that enable increased productivity with fewer monitors, televisions, and mobile devices; lithium-ion workers than in the past will impact the skill sets need- batteries for cell phones; consumer networking hard- ed. Manufacturing jobs will remain an essential source ware such as routers and set-top boxes; and advanced of middle-wage jobs, vital for a thriving, competitive composites and ceramics. The US has also lost the abil- economy. Specific actions can be taken to support the ity to manufacture key categories of high value steel. growth and advancement of manufacturers in California and to develop the workforce its producers need.

52 Strengthening California’s Environment for Manufacturing

To address these losses, national manufacturing policies Digital Manufacturing and Design Innovation Insti- are increasingly embracing regional cluster strategies. tute, Chicago, Illinois: Opened in May 2015, this These networks often include public research institutions, institute is focused on enabling interoperability across such as universities and national laboratories. The goals supply chains and on developing enhanced digital of recent national manufacturing policies have been capabilities to design and test new products. centered on rebuilding an industrial commons—a term used to define the knowledge assets and physical LIFT: Lightweight Innovations for Tomorrow, Detroit, facilities that are shared between production firms; Michigan: Opened in January 2015, this institute suppliers of materials, components, and production works to speed the development of new lightweight equipment; and research and development facilities, metal and manufacturing processes for products which are often geographically concentrated. with warfighting, aerospace, automotive, and other applications. A recent federal initiative highlights this industrial commons approach. In 2014, Congress appropriated Institute for Advanced Composites Manufacturing $300 million over 10 years to the National Network for Innovation, Knoxville, Tennessee: Opened in June Manufacturing Innovation (NNMI) Program to build a 2015, this institute is focused on lowering the costs network of 15 institutes that would seek to bring togeth- and reducing the energy needed for the manufacturer regional manufacturing stakeholders from industry, ing of advanced composites, in order to enable their government, and academia with the goal of facilitating use in a broader range of products including light- advanced manufacturing processes from basic research weight highly fuel-efficient vehicles and lighter, more to implementation. With investments coming from the efficient industrial equipment. Department of Defense and the Department of Energy, AIM Photonics: American Institute for Manufactur- seven NNMI Program institutes were established by the ing Integrated Photonics, Rochester, New York: end of September 2015. Announced in July 2015, this institute will advance America Makes: The National Additive Manufacturing technology development for the manufacturing of Innovation Institute, Youngstown, Ohio: Launched in integrated photonics circuits, which allow the place- August 2012 with $30 million in federal funding and ment of thousands of photonic components (such as opened in October 2012, this institute is devoted to lasers, detectors, waveguides, modulators, electronic helping the US grow its capabilities in 3D printing by controls, and optical interconnects) on a single chip, fostering collaboration in design, materials, technol- enabling faster data transfer capabilities. ogy, and workforce. NextFlex: Flexible Hybrid Electronics Manufacturing PowerAmerica: The Next Generation Power Innovation Institute, San Jose, California: Announced Electronics Manufacturing Innovation Institute, in August 2015, this institute’s activities will benefit Raleigh, North Carolina: Opened in January 2015, a wide array of markets including defense, automo- this institute is focused on enabling the manufactur- tive, communications, consumer electronics, medical ing of energy-efficient, high-power electronic chips devices, healthcare, transportation, and agriculture. and devices, by making new semiconductor technologies cost-competitive with current silicon-based power electronics.

53 Reinventing Manufacturing

The federal government has also launched two addi- Today, 16 iHubs span the state, each with a distinctive tional manufacturing innovation institute competitions— model for coordinating research and business activi- one focused on revolutionary fibers and textiles, and ties. Examples of iHubs and their strategies include one focused on smart manufacturing, advanced sensors, the following: and process controls. Collaborating with National Laboratories: The i-GATE California Initiatives to Link iHub in Livermore receives partnership support from R&D and Manufacturing Lawrence Livermore National Laboratory and Sandia National Laboratories. California has secured one NNMI site in San Jose, and the state is also a national leader in federally-sponsored Leveraging Academia: The Clean Tech LA iHub in R&D awards, which often take the form of research per- Los Angeles supports technology commercialization formed through academic institutions and companies. In through collaborations with UCLA, USC, and Caltech. fiscal year 2013, the federal government placed $16.3 Connecting Start-Ups to Opportunities: Multiple billion in research obligations within California, ranking iHubs, including those located in San Diego, it first among states with approximately 13.1 percent of San Francisco’s Mission Bay, Chico, and Santa the total for R&D awards in all states.25 Only one other Rosa, support entrepreneurs by providing physical state—Maryland with $15.9 billion in awards—surpassed infrastructure and business services. the $10 billion level.

Taking advantage of its strength in public research, California launched the Innovation Hub (iHub) program in 2010 in an effort to harness and enhance the state’s innovative networks. The iHubs seek to improve the state’s competitiveness by stimulating partnerships and job creation around specific research clusters. The iHubs leverage assets such as research parks, technology incubators, universities, and federal laboratories to provide an innovation platform for start-up companies, economic development organizations, and business groups.

54 SPOTLIGHT CalCharge: Charging Battery Manufacturing in California

In an effort that mirrors the iHub program, more The organization’s mission is to support battery compa- than 80 battery technology companies have formed nies as they evolve from idea to prototype to product. a California public-private partnership around energy CalCharge provides this support through its partner storage. CalCharge began as a joint effort of Lawrence laboratories, which have streamlined their processes Berkeley National Laboratory, San Jose State Univer- for allowing outside firms to conduct research. Provid- sity, SLAC National Laboratory, and the International ing laboratory space and access to scientific equip- Brotherhood of Electrical Workers. Its membership now ment reduces the barriers to entry into the battery includes a consortium of companies such as Duracell, sector, and companies can develop their ideas sooner Hitachi, Volkswagen, LG, and Eaton Corporation, as and with lower initial costs. CalCharge will also assist well as Bay Area start-ups, including EnerVault, Primus start-ups with locating Bay Area manufacturing space, Power, and Halotechnics. as maintaining close proximity between engineering innovations and manufacturing will be critical in the highly technical energy storage sector.

SPOTLIGHT Building a Biomedical Manufacturing Network

Based in the East Bay and funded by the US more than 700 biomedical manufacturing companies Department of Energy’s Office of Energy Efficiency in the Bay Area—the largest biomanufacturing cluster & Renewable Energy (EERE), Bio-Manufacturing to in the world—providing business services and placing Market is a UC Berkeley initiative which is part of interns with companies. It maintains a database of the Advanced Manufacturing Jobs and Innovation over 1,000 university and federal laboratory technol Accelerator Challenge grant. It is a member of the ogies that are available for transfer to companies, and Biomedical Manufacturing Network, which was it publishes reports on talent, manufacturing technol- co-founded by UC Berkeley and works to support ogy, and commercialization in the biomedical industry. biomedical entrepreneurship, manufacturing, and In a partnership that operates under the Biomedical commercialization in the Bay Area. Manufacturing Network’s umbrella, Oakland’s Laney College and UC Berkeley jointly support a Bioengineer- The Biomedical Manufacturing Network was formed ing Certificate Program that offers training at both UC in 2013 after a partnership of regional entities won Berkeley and Laney College for both students and cur- a US Advanced Manufacturing Jobs and Innovation rent workforce participants who need retraining. Accelerator Challenge grant funded by the US Depart- ments of Commerce, Energy and Labor, the US Small Business Administration, and the National Institute of Standards and Technology (NIST). Today it engages Reinventing Manufacturing

Recommendations to Bolster voucher program used in some national labs. Small California’s Clusters of Innovation manufacturers would submit business plans to a gov- Related to Manufacturing erning body that would select companies to participate in the shared facility. These manufacturers would Leverage capabilities across California iHubs, and then be given credits to be spent through utilization within individual iHubs, through a dedicated state- of equipment and other business assistance. wide funding mechanism. Create improved coordination across engineering re- Currently, the iHub system operates without any search functions at University of California campuses. state funding. Instead, iHub activities have been funded through external partnerships—that often Similar to the multi-state strategy employed by the then dictate the iHub’s strategies going forward. NNMI designee headquartered in Tennessee—which If the Governor’s Office of Business and Economic includes participants from eight states—future Cali- Development (GO-Biz) were to provide a pool of fornia applications for federal grants could consider competitive funds based on targeted metrics and ways to better leverage competencies and areas of goals, iHubs could be more effective and account- specialization across the UC system. For example, able in expanding the innovation infrastructure that UC Davis has a well-regarded machine tools program; underlies advanced manufacturing. Competitive UC Irvine’s core competencies include defense- funding also creates an opportunity for iHubs with related applications and medical devices; UCLA has overlapping capabilities or geographies to partner a smart manufacturing research center; UC Berkeley together to further their reach. is a leader in sustainable manufacturing; and UC Santa Barbara has core strengths in materials. Cre- Invest in shared manufacturing spaces and provide ating cross-campus partnerships in an application avenues for small manufacturers and start-ups to supported by businesses and other research and engage with and commercialize new technologies manufacturing organizations across the state would and processes. allow California to better leverage the assets con centrated in distinctive regions. Particularly in portions of the state where national laboratories do not exist, there are opportunities for the state to invest in high-tech facilities with state-of- the-art equipment that can support specific innovative regional clusters. An example of this approach is New York State’s commitment of $225 million to investments in the Buffalo/Niagara region that would build a cluster of green energy businesses.26 The money will go toward state-owned facilities that will house equipment and machinery that clean energy firms need to develop new products but cannot easily afford on their own. To catalyze participation among a wide range of manufacturers in similar programs, California can employ a strategy resembling the small business

56 Strengthening California’s Environment for Manufacturing

Grow the Talent Base for California Initiatives to Match Training with the Needs of Employers in Manufacturing Advanced Manufacturing Of the $4.3 billion spent annually by the federal gov- The manufacturing sector faces a growing talent gap ernment on technology-oriented education and train- that could stall its growth. As technological improve- ing, only one-fifth goes toward programs supporting ments have changed the landscape of industry in the vocational and community college training programs.29 US, manufacturing jobs have shifted from low-skill Given this level of national funding, California workforce assembly line positions to more advanced production programs for manufacturing have been centered on roles, such as machinists, tool and die makers, robotics better utilization of the community college system to operators, and technicians. Also growing in concentra- place students on career paths in manufacturing. tion in manufacturing are PhD scientists in such fields as Under the California Community Colleges Economic advanced materials, chemistry, biotechnology, and phys- and Workforce Development Program, industry-specific ics. While these jobs have all evolved, the educational workforce services are coordinated by regional Deputy systems that train workers in the skills for advanced Sector Navigators who align community college and manufacturing have shifted at a slower pace. other workforce development resources with the needs In a 2011 Deloitte survey of manufacturers, 74 percent of industry sectors. Advanced manufacturing is one of of respondents indicated that workforce shortages or 10 priority areas under the program, with goals that skill deficiencies in production roles were having an include identifying and filling gaps in community college impact on their ability to expand operations or improve curricula with the help of industry partners and attract- productivity. In some cases, the loss of manufacturing ing more students to career paths in manufacturing and activities has eroded the technical skills base, pushing other technical areas. manufacturers to locate in other locales. The Career Technical Education Pathways Initiative aims The skills gap in manufacturing is also generational. As to engage learning institutions at all levels in improving companies shifted production abroad, manufacturing linkages, increasing readiness of secondary students trades became less attractive to students. To highlight for postsecondary education, and increasing student this gap, the American Welding Society estimates success and training in postsecondary education. Grants that the average age of the American welder is 55.27 provided through the program help in the development As these workers approach retirement, a new genera- of local and regional career technical education path- tion of workers will be needed to replace them on the way systems. For example, the Bay Area Community production floor. However, many younger workers lack College Consortium is developing new curricula with the skills necessary to be successful in the advanced eight colleges and 28 manufacturing industry partners manufacturing economy. Given a weak pipeline of to strengthen the alignment of training programs with manufacturing talent, manufacturers have cited a need regional industry needs. It has also created work-based to interview more candidates in order to find qualified learning opportunities at six Bay Area companies.30 individuals, and a lack of basic familiarity with precision manufacturing tools among new hires has increased turnover.28 This problem will worsen as large numbers of highly experienced workers near retirement.

57 SPOTLIGHT San Diego Workforce Development Activity

The San Diego region is home to two innovative Quality Controlled Manufacturing Inc. (QCMI), a workforce development programs for advanced precision machining manufacturer based in Santee, manufacturing. California, partnered with the San Diego Workforce Partnership to establish the QCMI Machinist Training The Workshops for Warriors Program is dedicated to Program in 2014. Through a structured curriculum training, certifying, and placing veterans into advanced created by expert machinists at QCMI, students are manufacturing careers. Founded as a way to assist taught shop theory, blueprint reading, safety prin- veterans’ transition to civilian life, Workshops for ciples, machining, and quality control. Students also Warriors is a nonprofit organization that operates a complete a final project in which they create sketches half-acre industrial campus where its students are able and a machining program and utilize fabrication tools to learn machining and welding techniques on equip- to produce an actual part. The program had its first ment donated by or leased from area manufactur- graduates from the six-month course in April 2015. ers. The program is up to 16 months in duration and Graduates also receive assistance in finding positions results in credentials from the industry’s leading bodies within QCMI or other area manufacturers. Future stu- (the American Welding Society, the National Institute dents will be brought into the program through factory for Metalworking Skills, Mastercam University, and tours and veterans associations. Solidworks). To date, 170 veterans have completed the program at no cost to them, and the program boasts a job placement rate of 100 percent. The waitlist for Workshops for Warriors now tops 400 veterans. Strengthening California’s Environment for Manufacturing

Recommendations to Enhance California’s rates, and the number of students receiving industry Manufacturing Workforce credentials.34 Additionally, the 2015–2016 California state budget extended the Career Technical Pathways Initiate apprenticeship programs to build skills for new Initiative by one year, which will sustain a program workers and to train those that are changing fields. that has been in existence since 2005 and can be instrumental in promoting advanced manufacturing Corporate apprenticeship programs can be used to career exploration for community college students. draw younger workers into the manufacturing field in Attention should also be paid to the sustainability of California. By combining classroom training with on- these programs after state funding expires. the-job experience, the costs of training new employees for manufacturing skills can be split between the Adopt a statewide certification for advanced manu- educational system and industry. Germany employs facturing skills across strategically selected schools. the best practice apprenticeship model under which two-thirds of the country’s manufacturing workers California can develop a manufacturing certification are trained through partnerships among companies, model that allows students to sequence credentials vocational schools, and trade guilds.31 Germany’s over time to build comprehensive advanced manu- system is part of the reason the country’s youth facturing skills. These certifications should range from unemployment rate is below 8 percent, less than machining and tool and die making to maintenance half of the rate in the US.32 Switzerland offers another technician and quality control skills. They should successful example of public-private cooperation to also be compatible with the National Association support manufacturing and other skills development of Manufacturers’ skills certification system, so that through apprenticeships. the credential can be transferred to work in other states. Designating strategic community colleges Domestically, the Department of Labor supports as “manufacturing schools” could also sharpen public-private partnerships that establish apprentice- the manufacturing focus across the state and give ship programs in advanced manufacturing. At the regional industry participants a more streamlined state level, South Carolina has been able to stimu- means to participate in curriculum development late apprenticeships through a $1,000 tax credit per and to recruit future workers. year per apprentice.33 A similar initiative in California can be tailored to small and medium manufacturing Pursue higher goals for incorporating STEM educa- enterprises that cannot otherwise afford the in-house tion and its associated career pathways into curricula training programs that will be needed to bridge skill for elementary and high schools. and generational gaps going forward. Educational objectives in Science, Technology, Support state-funded technical education programs Engineering, and Math (STEM) continue to be through sustained funding connected to metrics high priorities in school districts around the state. for effectiveness. Programs that bring robotics, machining, and other applied technologies into K–12 classrooms can The 2015–2016 California state budget established begin to fill the talent pipelines needed for advanced the Career Technical Education Incentive Grant Pro- manufacturing in the state. By reaching students at gram to spur partnerships between school districts, an earlier age, these types of programs can provide colleges, and businesses. The budget provides $400 awareness of the options available to students who million, $300 million, and $200 million in each of the may not wish to pursue a four-year degree, and these next three years, respectively, for competitive grants. programs can increase the knowledge and appeal of These grants would require a dollar-for-dollar match manufacturing careers. and proof of effectiveness across a range of out- comes such as graduation rates, course completion

59 Reinventing Manufacturing

Provide Access to Capital California Programs to Incentivize Manufacturing and Financial Incentives for Within the State To assist manufacturers expanding their operations Manufacturers within the state or looking to relocate, the State of Cali- Clustering and workforce initiatives can provide the fornia has created a package of incentives. long-term structural changes necessary to move The California Competes Tax Credit is negotiated be- advanced manufacturing in California forward. More tween GO-Biz and businesses wanting to come to Cali- immediately, the availability of capital plays a key role in fornia or grow within the state. Credit amounts depend a firm’s ability to grow, and financial incentives often can on the number of jobs that will be created in California determine siting locations as manufacturers expand. and the amount of investment by the business. Of the At the national level, the federal Research and Experi- $151.1 million of tax credit available in fiscal year 2014– mentation Tax Credit provides $7 billion in tax incen- 2015, 25 percent was reserved for small businesses with tives each year to companies that make investments sales less than $2 million. in research.35 This tax credit allows firms to generate a higher rate of return on their research programs and For each taxable year between 2014 and 2020, the New also boosts the total dollars invested in research and Employment Credit is available to a tax-paying business development. A New York University study estimated that hires a full-time employee. The work performed by that a 10 percent reduction in the cost of R&D leads the the employee must occur within an economic develop- average firm to increase its research intensity—the ratio ment area designated by the state, based on employ- of R&D spending to sales—by 11 percent.36 ment and poverty levels. In order to qualify for the credit, the business must have a net increase in the total While manufacturers have called for lower effective number of full-time employees in California. corporate tax rates at the federal level,37 California tax policies have also played a role in manufacturers’ Eligible manufacturers can finance capital projects decisions on where to locate and invest. With an 8.84 through Tax-Exempt Industrial Development Bonds, percent state corporate tax rate, California has the which are issued by a local authority—such as an eco- 10th highest rate in the country.38 Other states, such as nomic development authority or joint powers author- Nevada, Washington, and Texas, do not tax corporate ity—and are approved by the California Industrial Devel- earnings. Aside from taxing earnings, many states tax opment Financing Advisory Commission. With a lower real property, tangible personal property, and corporate cost to borrow stemming from the tax-exempt status, net worth (i.e., franchise taxes); business purchases of manufacturers can use the bond proceeds to finance the equipment are also taxed in many jurisdictions via the acquisition and rehabilitation, or construction of manu- state sales tax. Taken together, these tax burdens can facturing facilities. be a determining factor in where a company decides to make new investments. Like many other states, California provides a partial sales tax exemption for manufacturing equipment. One area for possible reform that could lower the abso- The exemption, which is intended to retain and attract lute tax amount paid by manufacturers in California is the manufacturers, applies to purchases of capital equip- state’s tax on tangible personal property. Income-gener- ment made from July 1, 2014 through June 30, 2022 ating movable assets, such as machinery used in manu- and reduces California state sales tax by 4.1875 percent facturing, fall under the definition of tangible personal on up to $200 million of a manufacturer’s purchases. property. In California, this property is taxed at a rate of A company that takes advantage of the exemption 1.22 percent; however, 12 states exempt new machinery could potentially save up to $8.375 million in sales and equipment from this tax to varying degrees. Cali- taxes per year. Eligible purchases include basic manu- fornia’s 7.5 percent sales tax rate is also the highest in facturing equipment as well as food processing and the nation, though the state has already taken steps to biotech R&D equipment. partially exempt manufacturing equipment from this tax.

60 Strengthening California’s Environment for Manufacturing

Recommendations to Increase Access to Make manufacturers more aware of state-provided Capital for Manufacturers in California funding sources. Institute a special tax credit for venture capital invest- California has been able to lower overall costs for ments in small enterprises that manufacture products manufacturing capital expenditures by providing within the state. Industrial Development Bonds for project sponsors. However, only seven manufacturers used this financ- California’s concentration of venture capital investing mechanism between 2012 and 2014, with $32.5 ment has contributed to its strength as an innovation million issued. Historically, loan reporting require- hub for advanced technologies and services, espe- ments and lengthy approval processes have tended cially in relationship to computing and healthcare. to lower manufacturers’ interest in applying for bond In 2014, California-based companies received 56 issuances. If the benefits of the program are market- percent of the $48 billion of venture capital invested more aggressively through local economic devel- ment in the US.39 However, the types of enterprises opment channels, a greater number of manufacturers that venture capital generally funds are an imperfect will be encouraged to take advantage of low-cost fit with manufacturing, as sectors such as advanced capital when expanding or moving their operations. materials and biotechnology require larger capital outlays and longer times to exit than are usually Support the creation of local facilities housing manu- funded through the venture capital model.40 facturing equipment that can be used for product prototyping and as a way to help small manufacturers To create a stronger market for investment in the conserve resources and move their products more state’s manufacturing base, especially small manu- quickly to market. facturers, California could employ a tax credit for investments made in the sector. At least 21 states One of the key reasons that new product ideas fail offer income and business tax credits for angel invest- to receive investments that would enable them to ments;41 these credits range from 15 percent of the be manufactured at scale is the lack of a prototype. investment in Colorado to 100 percent in Hawaii. Prototyping can be costly for new companies that Some states (Arizona, Ohio, and Maine) offer higher lack access to manufacturing tools, though organiza- credits for investing in businesses that are located in tions in California are beginning to provide these targeted locales or that operate within a specific sec- tools to entrepreneurs. For example, Prospect Silicon tor (nanotechnology in Wisconsin). A similar strategy Valley, a nonprofit technology commercialization in California can be tailored to investments in small catalyst supported by the City of San Jose, assists manufacturers that produce at least a specified per- emerging companies via its demonstration center, a centage of their products within the state. $12 million, 23,000 square foot facility with industrial and lab space. There, companies are able to demonstrate new technological innovations in a real world setting, helping them bring their products to the market faster.

61 SPOTLIGHT New Spaces for Manufacturing

Spaces that are zoned for industrial uses are especially Universities are also offering up their facilities to allow scarce in dense urban areas, as many sites that were manufacturers easy access to prototyping equip- once used for producing goods have been converted ment. In Southern California, UC Irvine is home to the to commercial or residential uses by cities looking to non-profit RapidTech, which is equipped with fifty 3D capture greater tax receipts. Building new industrial printing machines and other equipment that companies spaces can often be extremely expensive due to high can use to quickly visualize and design a product. In urban land costs, and it can sometimes be met with addition to allowing small businesses the ability to use significant community opposition. For these reasons, prototyping equipment, RapidTech also trains commu- SFMade, a San Francisco non-profit that works to sup- nity college and university students in technical skills— port manufacturing within the city, has developed a helping to bridge the skills development gap between program to create affordable manufacturing spaces. four-year universities and community colleges. Through the real estate development entity Place- Made, SFMade is partnering with the city and private At UC Davis, Area 52—a new maker space—will offer developers to create new industrial spaces. machinery and co-working space for start-ups, with a particular focus on medical devices, agricultural tech- The first of these projects is a 56,000 square foot nology, robotics, energy and aerospace. The 36,000 “manufacturing foundry” that will house multiple square foot facility, located close to campus, will pro- industrial tenants in San Francisco’s Potrero Hill neigh- vide wet labs, a fully equipped machine shop, a wind borhood. The project is composed of three buildings, tunnel, a composites shop and a computer lab, with the one of which will be used by SFMade to provide space goal of reducing the cost to start-ups of prototyping to small, start-up manufacturers that otherwise would new products. Vocational courses will also be avail- have to spend significant capital on workspaces. The able for students seeking advanced manufacturing other buildings will have ground floor industrial spaces technology skills. with compatible office uses above.

SFMade is one many organizations catering to the burgeoning “maker movement” in the Bay Area and beyond. TechShop, an open-access makerspace with eight locations across the country (including three Bay Area locations), provides another example of the benefits of shared industrial space. It offers access to laser cutters, plastics and electronics labs, machine tools, a wood- and metal-working shop, a textiles department, and welding stations. It also provides comprehensive instruction in each area. TechShop’s programs have helped aspiring entrepreneurs to build greater knowledge of manufacturing techniques, and they have provided a launching point through prototyping for numerous start-ups (including mobile payment platform provider Square, device case maker DODOcase, and book lamp manufacturer Lumio). Strengthening California’s Environment for Manufacturing

Address the Cost of Doing Three areas of high cost for manufacturers in California are detailed below. Business in California for The Impact of Environmental Regulations Manufacturers on Manufacturers The high cost of operating a business in California is The California Environmental Quality Act (CEQA) often cited as a reason why manufacturers choose to requires state and local agencies to identify significant locate facilities in other states.42 According to an August environmental impacts of their actions and to avoid or 2014 study by the California Foundation for Commerce mitigate those impacts. Most proposals for physical & Education, California ranks 43rd of all US states in development in California are subject to CEQA, as the terms of general business costs, ranking in the bottom statute applies to all discretionary projects proposed or 10 in terms of the costs of taxes, litigation, energy, and approved by a California public agency. This includes labor.43 The study also found that the average costs of privately-funded projects such as those related to the auto manufacturing and machine shops in California are expansion or new building of manufacturing facilities. respectively 27 percent and 14 percent higher than the average for other western states. The environmental reviews that CEQA requires can be challenged in court by any group opposing the project While the cost of doing business in California can place (often for reasons that are not environmental in nature), a burden on some manufacturers, many companies adding time, cost, and legal complications to new continue to produce in California and many others are projects. For example, Japanese light-rail manufacturer deciding to locate new facilities within the state. For Kinkisharyo International almost scuttled plans to build high-value manufacturers, the state’s large consumer a new facility in the Southern California city of Palmdale demand, proximity to foreign markets, high-skilled in 2014 due to a CEQA challenge from labor groups.44 talent, and network of universities and research centers While the two sides eventually settled, the Kinkisharyo often can offset the additional costs imposed by regu- example highlights the unintended consequences that lation and other state policies. However, manufactur- CEQA can have on manufacturing. Given the debilitat- ers that are less integrated with the state’s innovation ing economic impacts that CEQA can have, reform mea- economy are more likely to feel burdened by the state’s sures continue to be a priority for many policymakers. regulatory environment. High Costs of Workers’ Compensation in California Workers’ compensation premiums make up an average of 1.5 percent of manufacturers’ total employee compensation costs in the US. (These costs include wages, paid leave, retirement and savings, and other legally required benefits.)45 While a small overall cost, that percentage is much higher in California—at 3.5 percent of costs—as of January 2014.46 As neighboring states such as Arizona, Oregon, and Nevada have workers’ compensation premium rates well below the national median, the added costs of operating in California can deter some manufacturers from expanding their in-state workforces. However, this is less the case for high-value producers where capital costs far outweigh the costs for labor.

63 Reinventing Manufacturing

California’s high workers’ compensation premiums are In Los Angeles, a manufacturing base that was located attributable to higher-than-average utilization. Cali- within the central urban core has continually been fornia’s rate of work injury claims per 1,000 workers pushed to outlying areas as land use policies have is 46 percent higher than the national average. While shifted. The City of Los Angeles has only 8 percent of its reduced claim frequency has been driving rates lower total land base zoned for industrial uses; however, nearly across the country, in California, claim frequency increas- 30 percent of this land has already been redeployed es of 3.2 percent in 2012 and 3.9 percent in 2013 have for commercial and residential uses. Competition for been pushing expenses higher.47 industrially-zoned land in Los Angeles remains high as evidenced by its 3 percent industrial vacancy rate, the California’s system is also more expensive to run be- lowest of any metropolitan area in the state. cause of complex administrative features, which were the target of Senate Bill 863, passed in 2012. The legis- Industrial land use policies can alleviate some of the lation aims to reduce “friction” in the system and gener- land availability issues that manufacturers encounter ate savings to enable employer premium reductions. in California. Industrial zone policies date back to the To date, potential savings, estimated at $200 million 1980s when Chicago, New York City, and Portland annually (or 1.2 percent of total system costs) have been created planned manufacturing districts in order to eclipsed by claim payment increases.48 protect industrial land that was being encroached upon by residential uses. Manufacturers in these districts were Limited Land Availability for Industrial Use in afforded special rights, such as expedited permitting Urban Areas for building expansion and eligibility for special financing options, and they received benefits, such as In California’s two leading manufacturing regions, the city-provided infrastructure spending on new bridges San Francisco Bay Area and Los Angeles, manufactur- and streets and on improved transit and transportation ing development is being constrained by a lack of land options to support employment. availability as well as by a scarcity of vacant manufacturing facilities that could be repurposed for alternative More recently, New York City created 15 Industrial Busi- uses. Bay Area industrial vacancy rates are currently ness Zones in 2006. These zones were intended to fos- approaching the historic low levels set in the late 1990s ter real estate support for manufacturers by limiting the during the dot-com boom. Larger manufacturers are potential for residential rezoning, along with tax credits beginning to look outside of the immediate Bay Area to and zone-specific planning efforts supporting business markets in San Joaquin County where available options relocation. Since that time, a large amount of land in and rental rates are more favorable. these industrial safe havens has been converted to commercial uses—prompting the New York City Council to reevaluate its land use policies for manufacturing.

64 Strengthening California’s Environment for Manufacturing

Recommendations to Reduce the Cost of Identify areas of manufacturing concentration Doing Business in California and designate those areas for prioritization in land use planning. Create a more targeted mechanism for CEQA challenges to environmental reviews. By the creation of special designations, such as In- dustrial Priority Corridors, cities across California can Limiting windows for CEQA challenges would preserve urban industrial bases, and manufacturers be a first step toward changing CEQA from the can have greater certainty in making long-term real barrier that it often can be to the environmental estate investments. Additionally, cities should con- tool it was intended to be. In the 40 years since sider balancing the competing needs of residential CEQA was passed, Congress and the California and commercial uses while prioritizing infrastructure Legislature have adopted more than 120 laws to investments in these areas. For example, zoning that protect environmental quality in many of the same promotes and requires greater density and mixed, areas required to be mitigated under CEQA. These compatible uses (e.g., commercial and industrial include laws like the Clean Air Act, the Clean Water space alongside residential) can spur the creation Act, and the Endangered Species Act at the federal of creative corridors for the advanced manufactur- level, as well as greenhouse gas emissions reduction ing economy. As advanced manufacturers move standards (Assembly Bill 32) and a requirement to toward smaller-scale custom manufacturing with new prioritize transportation projects in preferred growth technologies, the preconception of manufacturers areas (Senate Bill 375) at the state level. CEQA reform needing large parcels of land to house buildings should take into account the environmental standards with smokestacks and high noise levels no longer that these laws seek to meet while introducing holds. Instead, policies should be explored to allow increased accountability, transparency, consistency, manufacturing activities to coexist with other uses in and timeliness to CEQA processes. populated areas.

65 INSIGHT Industrial Land Use in California Greg Matter, Jones Lang LaSalle

SACRAMENTO Cluster Industrial Food Manufacturing, Transportation and Type Area Logistics Manufacturing, Construction Materials

Largest Vacancy Siemens, Blue Diamond Growers, Aerojet, Manufacturers Tietchert, Intel Materials Materials 16,851,550 SF for manufacturing; 140,502,237 SF total industrial 21.8% for manufacturing; FAR NORTH 9.8% for total industrial Food Manufacturing, Timber Products

Sierra Paciﬁc Industries CENTRAL VALLEY Food Manufacturing Materials Not an established market Foster Farms, Kelloggs, Kraft Foods, N/A General Mills 17,849,037 SF for manufacturing; NORTH BAY 106,230,114 SF total industrial Food Manufacturing, Wine Production 15.5% for manufacturing 6.7% for total industrial Anheuser-Busch, Clorox, Jelly Belly Candy Company, Bell Products, BioMarin Pharmaceutical, Petaluma Poultry Processors 24,654,928 SF for manufacturing; 74,257,728 SF total industrial 3.1% for manufacturing; 8.1% for total industrial

EAST BAY Heavy Industrial Manufacturing, Transportation and Logistics SAN DIEGO Manufacturing, Petroleum Reﬁning, Household Goods Manufacturing Biotech/Medical Chevron, Clorox, Bio-Rad Laboratories, Life Technologies Corp, Tesla, Annabelle Candy, Columbus Salame Neurocrine Biosciences 24,189,569 SF for manufacturing; 49,200,297 SF for manufacturing; 110,324,539 SF total industrial 128,099,712 SF total industrial 7.8% for manufacturing; 9.0% for manufacturing; 5.8% for total industrial 5.9% for total industrial

SOUTH BAY Computer & Electronics Manufacturing, LOS ANGELES Biotech/Medical Devices/Pharmaceuticals Aerospace, Biotech/Medical Apple, Google, Microsoft, Intel, Advanced Micro Boeing, Northrup Grumman, Lockheed Martin, Devices, Cisco, Marvell Semiconductors, National General Dynamics, Honeywell, Amgen 24,654,928 SF for manufacturing; 40,870,964 SF for manufacturing; 74,257,728 SF total industrial 780,456,056 SF total industrial 3.1% for manufacturing; 4% for manufacturing; 8.1% for total industrial 3% for total industrial

Note: The eight industrial land use regions do not directly correspond with the eight manufacturing regional clusters analyzed in Part Two because the industrial land use map is based upon proprietary data provided by Jones Lang LaSalle. PART Two

Del Norte Siskiyou Humboldt Modoc Northern California Trinity Shasta Sacramento Area Lassen Tehama Bay Area Mendocino Plumas Glenn Butte Central California Colusa Sierra Lake Sutter Central Coast Yuba Nevada Sonoma Yolo Placer Napa Los Angeles Area El Dorado Sol- Sacra- ano mento Orange County Marin Amador Alpine San Contra Calaveras Francisco Costa San San Diego Area Ala- Joaquin San Tuolumne Mateo meda SantaStanislaus Mariposa Mono Santa Clara Cruz Merced Madera San Benito Fresno

Monterey Inyo Kings Tulare San Luis Obispo Kern Santa Barbara

Ventura Los San Bernardino Angeles

Orange Riverside

San Diego Imperial

California manufacturing trends can be seen in eight regional clusters. Reinventing Manufacturing

California Manufacturing Regional Clusters Analysis

Los Angeles Area The Los Angeles Area—defined as Los Angeles, Transportation Equipment Manufacturing (principally Riverside, San Bernardino, and Ventura Counties—is aerospace)—down 31.7 percent. On the opposite California’s largest manufacturing hub. With 478,919 end of the spectrum during the same period, the manufacturing jobs, the region accounted for 38.5 number of establishments in Beverage Manufactur- percent of the state’s manufacturing employment and ing and Food Manufacturing increased by 62.4 and 8.4 percent of the region’s total employment in 2014. 3.7 percent respectively. Much of this activity is concentrated in the corridor between Los Angeles and Long Beach. These two cities In the 2010–2014 time period, the Los Angeles Area host two of the US’s top four ports (measured by total manufacturing sector with the fastest growing employ- foreign trade), together totaling nearly $400 billion in ment was Beverage Manufacturing (+17.1 percent). 2014 import and export value.49 Additional sectors that have led job growth since 2010 include Miscellaneous Manufacturing (+15.6 percent), In terms of employment, the Los Angeles Area’s lead- Fabricated Metal Product Manufacturing (+13.5 per- ing manufacturing sector is Fabricated Metal Product cent), and Furniture & Related Product Manufacturing Manufacturing. With 60,962 jobs in 2014, this sector (+10.0 percent). However, over the long term (1990– constituted 12.7 percent of the region’s manufactur- 2014) and reflective of nationwide trends, each of those ing employment base. Other sectors that were not far three additional sectors experienced overall job losses behind in employment size include Apparel, Textile, & in the Los Angeles Area, so the jobs added since 2010 Leather Manufacturing, Computer & Electronic Product represent a start at recovery and not a net gain. Manufacturing, Food Manufacturing, and Transportation Equipment Manufacturing. In contrast, Beverage Manufacturing had 1.9 percent more employment in 2014 than in 1990, and Pharma- The distribution of establishments across manufac- ceutical & Medicine Manufacturing had 89.3 percent turing sectors in the Los Angeles Area has remained more jobs in 2014 than in 1990, having experienced job fairly stable since 1990. Large declines took place growth throughout the 1990–2014 period rather than a between 1990 and 2014 in Furniture & Related Prod- surge in growth since 2010. uct Manufacturing—down 49.1 percent, Printing & Related Support Activities—down 48.3 percent, and

68 California Manufacturing Regional Clusters Analysis

Los Angeles Area Manufacturing Change by Sector, 2010–2014

70,000 Transportation Equipment Fabricated Metals Computers & Electronics Textiles 60,000 Food

50,000 Plastics Machinery 40,000 Pharmaceutical & Medicine Primary Metal 30,000 Wood & Paper Chemicals Printing Furniture Medical Miscellaneous Equipment 20,000 Nonmetallic Minerals Beverages 10,000 Petroleum & Coal Manufacturing Sector Employment Size

0 -20% -15% -10% -5% 0% 5% 10% 15% 20%

Employment Change from 2010 to 2014 Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

Los Angeles Area Manufacturing Employment by Sector, 1990–2014

1,000,000 Pharmaceutical & Medicine Mfg. 900,000 Beverage Mfg. Petroleum & Coal Products Mfg. 800,000 Medical Equipment & Supplies Mfg. Miscellaneous Mfg. 700,000 Primary Metal Mfg. Chemical Mfg. 600,000 Nonmetallic Mineral Product Mfg. Wood & Paper Products Mfg. 500,000 Plastics & Rubber Products Mfg. 400,000 Printing & Related Support Activities Machinery Mfg. 300,000 Furniture & Related Product Mfg. Food Mfg. 200,000 Fabricated Metal Product Mfg. Apparel, Textile, & Leather Mfg. 100,000 Transportation Equipment Mfg. Computer & Electronic Product Mfg. 0

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

69 Reinventing Manufacturing

Los Angeles Area Manufacturing Establishments by Sector, 1990–2014

30,000 Petroleum & Coal Products Mfg. Pharmaceutical & Medicine Mfg. Beverage Mfg. 25,000 Primary Metal Mfg. Nonmetallic Mineral Product Mfg. Medical Equipment & Supplies Mfg. 20,000 Wood & Paper Products Mfg. Chemical Mfg. Plastics & Rubber Products Mfg. 15,000 Transportation Equipment Mfg. Furniture & Related Product Mfg. Miscellaneous Mfg. 10,000 Machinery Mfg. Computer & Electronic Product Mfg. Food Mfg. 5,000 Printing & Related Support Activities Fabricated Metal Product Mfg. Apparel, Textile, & Leather Mfg. 0

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

70 California Manufacturing Regional Clusters Analysis

Bay Area The Bay Area—defined as Alameda, Contra Costa, many manufacturers are there because they are working Marin, Napa, San Francisco, San Mateo, Santa Clara, closely with the region’s technology companies. Not only Solano, and Sonoma Counties—is a leading technology are new, cutting edge products developed in the region, hub. The region’s rich innovation ecosystem is based but new tools for production are also developed there. on a high-skilled workforce, world-class universities and Localized supply chains that have formed around subsec- research labs, robust capital investment platforms and tors, such as energy-efficient lighting, healthcare devices, dense networks that enable the movement of people and automotive vehicles, have supported the growth of and ideas. Throughout the development of its innova- manufacturing and have enabled high-value production tion economy, the co-location of R&D and production to occur in close proximity to research activities. has been a source of strength, as the seamless collaboration between engineering production teams could In 2014, the Bay Area’s 293,847 manufacturing jobs speed the iterative process of innovation. After the loss made up 23.6 percent of manufacturing employment of semiconductor fabs and other production facilities in California. These jobs are heavily concentrated in the in the 1990s and 2000s, manufacturing in the region is Computer & Electronic Products Manufacturing sector, refinding its roots. which constituted 47.4 percent of the Bay Area’s manufacturing employment with 139,271 jobs in 2014. Manufacturing as a whole accounted for 8.4 percent of Bay Area employment in 2014. Although the Bay The Computer & Electronic Products Manufacturing Area is one of the most expensive regions of the state, sector also accounted for 19.1 percent of Bay Area

Bay Area Manufacturing Employment Change by Sector, 2010–2014

160,000 Computers & Electronics 140,000

120,000

100,000 Wood & Paper 80,000 Medical Equipment Textiles 60,000 Pharmaceutical & Medicine 40,000 Fabricated Food Metals Beverages Nonmetallic Chemicals Minerals Manufacturing Sector Employment Size Machinery Petroleum Miscellaneous 20,000 Transportation & Coal Primary Equipment Plastics Metal Furniture 0 Printing -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50%

Employment Change from 2010 to 2014 Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

71 Reinventing Manufacturing

manufacturing establishments in 2014—the largest 16.1 percent (adding 3,292 jobs); Beverage Manufac- share. Many of these firms are clustered in the corri- turing expanded by 17.0 percent (adding 3,019 jobs); dors between San Francisco, Santa Clara and Oakland. Fabricated Metal Product Manufacturing grew by 7.7 Establishments such as Cisco Systems, Intel, Oracle, and percent (adding 1,451 jobs); and Machinery Manufac- Advanced Micro Devices are large employers. turing increased by 16.9 percent (adding 2,413 jobs). Beverage Manufacturing is the only one of these five In the 2010–2014 time period, the Bay Area manufac- sectors that did not experience employment contraction turing sector with the fastest growing employment was between 1990 and 2014 and therefore achieved a net Transportation Equipment Manufacturing, although it gain in jobs over the long term. remained a very small portion of overall manufacturing employment in the region. This sector’s accelerated employment change can be largely attributed to Tesla’s emergence as a leader in electric vehicle production and to the cluster of suppliers that has formed around its Fremont factory.

Measured by overall number of jobs, the five largest Bay Area manufacturing sectors all experienced job growth between 2010 and 2014: Computer & Elec- tronic Product Manufacturing grew by 3.6 percent (adding 4,797 jobs); Food Manufacturing increased by

Bay Area Manufacturing Employment by Sector, 1990–2014

500,000 Primary Metal Mfg. 450,000 Transportation Equipment Mfg. Plastics & Rubber Products Mfg. 400,000 Miscellaneous Mfg. Apparel, Textile, & Leather Mfg. 350,000 Chemical Mfg. Furniture & Related Product Mfg. 300,000 Wood & Paper Products Mfg. 250,000 Petroleum & Coal Products Mfg. Nonmetallic Mineral Product Mfg. 200,000 Printing & Related Support Activities Medical Equipment & Supplies Mfg. 150,000 Machinery Mfg. Pharmaceutical & Medicine Mfg. 100,000 Fabricated Metal Product Mfg. Beverage Mfg. 50,000 Food Mfg. 0 Computer & Electronic Product Mfg.

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

72 California Manufacturing Regional Clusters Analysis

Bay Area Manufacturing Establishments by Sector, 1990–2014

14,000 Pharmaceutical & Medicine Mfg. Petroleum & Coal Products Mfg. 12,000 Primary Metal Mfg. Transportation Equipment Mfg. Chemical Mfg. 10,000 Plastics & Rubber Products Mfg. Beverage Mfg. 8,000 Nonmetallic Mineral Product Mfg. Wood & Paper Products Mfg. Miscellaneous Mfg. 6,000 Medical Equipment & Supplies Mfg. Machinery Mfg. 4,000 Furniture & Related Product Mfg. Food Mfg. Apparel, Textile, & Leather Mfg. 2,000 Printing & Related Support Activities Fabricated Metal Product Mfg. Computer & Electronic Product Mfg. 0

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

73 Reinventing Manufacturing

Orange County Among the eight California regions defined in this County employment, with 22,976 jobs and 16,854 jobs analysis, Orange County ranks third in manufacturing in 2014, respectively. employment, with 141,810 manufacturing jobs in 2014. It also has the highest concentration of manufacturing In the recent time period between 2010 and 2014, employment in the state, with manufacturing accounting the Orange County sectors with the greatest job for 10.0 percent of the region’s employment. growth have been Medical Equipment & Supplies Manufacturing (+36.5 percent), Primary Metal Orange County’s Computer & Electronic Product Manu- Manufacturing (+ 23.4 percent), and Wood & Paper facturing sector has the highest manufacturing employ- Products Manufacturing (+22.5 percent). ment level, with 35,099 jobs making up 24.8 percent of overall manufacturing employment in the region Over the long term (1990–2014), Medical Equipment in 2014. However, much like other California regions, & Supplies Manufacturing has also grown significantly, Orange County’s employment in Computer & Electronic expanding by 64.1 percent since 1990. These jobs were Product Manufacturing has fallen over time, down 1,761 added primarily in companies such as heart valve maker jobs since 2010 and 35,580 jobs since 1990. Edwards Lifesciences Corporation, healthcare product company Covidien, and Alcon Surgical. Aside from computer-related manufacturing, Fabricated Metal Product Manufacturing and Medical Equipment & Supplies Manufacturing provide significant Orange

Orange County Manufacturing Employment Change by Sector, 2010–2014

40,000 Computers & Electronics 35,000

30,000

25,000 Fabricated Metals Medical 20,000 Textiles Equipment 15,000 Plastics Machinery Pharmaceutical & Medicine Transportation Equipment 10,000 Food Nonmetallic Minerals Printing Furniture Wood & Paper 5,000 Manufacturing Sector Employment Size Petroleum & Coal Chemicals Primary Metal Beverages Miscellaneous 0 -60% -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50%

Employment Change from 2010 to 2014 Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

74 California Manufacturing Regional Clusters Analysis

Orange County Manufacturing Employment by Sector, 1990–2014

250,000 Primary Metal Mfg. Petroleum & Coal Products Mfg. Beverage Mfg. 200,000 Chemical Mfg. Nonmetallic Mineral Product Mfg. Miscellaneous Mfg. Wood & Paper Products Mfg. 150,000 Pharmaceutical & Medicine Mfg. Food Mfg. Apparel, Textile, & Leather Mfg. 100,000 Medical Equipment & Supplies Mfg. Furniture & Related Product Mfg. Machinery Mfg. Printing & Related Support Activities 50,000 Plastics & Rubber Products Mfg. Fabricated Metal Product Mfg. Transportation Equipment Mfg. Computer & Electronic Product Mfg. 0

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

Orange County Manufacturing Establishments by Sector, 1990–2014

7,000 Petroleum & Coal Products Mfg. Beverage Mfg. 6,000 Primary Metal Mfg. Pharmaceutical & Medicine Mfg. Nonmetallic Mineral Product Mfg. 5,000 Wood & Paper Products Mfg. Chemical Mfg. 4,000 Plastics & Rubber Products Mfg. Furniture & Related Product Mfg. Transportation Equipment Mfg. 3,000 Medical Equipment & Supplies Mfg. Food Mfg. Miscellaneous Mfg. 2,000 Apparel, Textile, & Leather Mfg. Machinery Mfg. 1,000 Printing & Related Support Activities Computer & Electronic Product Mfg. Fabricated Metal Product Mfg. 0

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

75 Reinventing Manufacturing

Central Valley California’s Central Valley—consisting of Alpine, Zacky Farms, ethnic food producer Ruiz Foods, tomato Amador, Calaveras, Fresno, Inyo, Kern, Kings, Madera, processor Kagome, and vegetable and fruit processor Mariposa, Merced, Mono, San Joaquin, Stanislaus, ConAgra Foods. Tulare, and Tuolumne Counties—is the heartland of the state’s food production sector. Clustered around the Aside from Food Manufacturing, Central Valley cities of Bakersfield, Fresno, Modesto, and Stockton, manufacturing employment numbers have shown the Central Valley’s manufacturing sectors provided strengths in Fabricated Metal Product Manufacturing, 98,038 jobs in 2014, and manufacturing accounted for Beverage Manufacturing, Wood & Paper Products 6.9 percent of employment in the region. The Central Manufacturing and Machinery Manufacturing. Sectors Valley, unlike other parts of California, does not have a that have experienced the most rapid growth between major electronics sector. 2010 and 2014 include Primary Metal Manufacturing and Furniture & Related Product Manufacturing. Food Manufacturing accounted for 48.2 percent of manufacturing employment and 20.8 percent of manufacturing establishments in the region in 2014. Employment in this sector grew by 8.4 percent between 1990 and 2014 and by 6.8 percent between 2010 and 2014. The largest food companies in the Central Valley include meat processing firms Foster Farms and

Central Valley Manufacturing Employment Change by Sector, 2010–2014

50,000 Food 45,000

40,000

35,000

30,000 Medical Equipment 25,000 Petroleum & Coal Chemicals 20,000 Beverages Wood 15,000 & Paper Fabricated Metals Transportation Nonmetallic Machinery Equipment 10,000 Minerals Primary Pharma- Printing Manufacturing Sector Employment Size Plastics Metal ceutical 5,000 Textiles & Medicine Computers Furniture 0 & Electronics -40% -20% 0% Misc. 20% 40% 60% 80% 100%

Employment Change from 2010 to 2014 Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

76 California Manufacturing Regional Clusters Analysis

Central Valley Manufacturing Employment by Sector, 1990–2014

120,000 Pharmaceutical & Medicine Mfg. Primary Metal Mfg. 100,000 Petroleum & Coal Products Mfg. Medical Equipment & Supplies Mfg. Chemical Mfg. Miscellaneous Mfg. 80,000 Apparel, Textile, & Leather Mfg. Computer & Electronic Product Mfg. Plastics & Rubber Products Mfg. 60,000 Furniture & Related Product Mfg. Transportation Equipment Mfg. Printing & Related Support Activities 40,000 Beverage Mfg. Machinery Mfg. Nonmetallic Mineral Product Mfg. 20,000 Wood & Paper Products Mfg. Fabricated Metal Product Mfg. Food Mfg. 0

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

Central Valley Manufacturing Establishments by Sector, 1990–2014

3,500 Pharmaceutical & Medicine Mfg. Primary Metal Mfg. 3,000 Petroleum & Coal Products Mfg. Apparel, Textile, & Leather Mfg. 2,500 Medical Equipment & Supplies Mfg. Chemical Mfg. Computer & Electronic Product Mfg. 2,000 Transportation Equipment Mfg. Miscellaneous Mfg. Plastics & Rubber Products Mfg. 1,500 Nonmetallic Mineral Product Mfg. Furniture & Related Product Mfg. Wood & Paper Products Mfg. 1,000 Printing & Related Support Activities Beverage Mfg. 500 Machinery Mfg. Fabricated Metal Product Mfg. Food Mfg. 0

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

77 Reinventing Manufacturing

San Diego Area Consisting of San Diego and Imperial Counties, the Of the 84,615 manufacturing jobs in the San Diego San Diego Area hosts the largest regional military pres- Area in 2014, a large portion are defense-related. This is ence in the US and is home to the Navy’s largest West particularly true in the region’s leading sector, Computer Coast base. Given the region’s military assets and large & Electronic Product Manufacturing, which made up number of veterans, the defense industry accounts for 26.2 percent of manufacturing employment with 22,134 one out of every four San Diego Area jobs. Manufac- jobs in 2014. Among the largest employers in the sector turing provided 6.2 percent of the region’s employ- are aerospace and defense companies Lockheed Martin, ment in 2014. With aerospace and defense as its base, Northrup Grumman, and BAE Systems. advanced manufacturing produces 23 percent of the San Diego Area’s gross regional product.50 Much of this The sectors with the fastest growing employment have activity comes from small manufacturers. been Beverage Manufacturing and Food Manufacturing. Although Beverage Manufacturing lost jobs between The San Diego Area offers unique workforce and 1990 and 2010, it experienced and a robust 146.0 percent geographic characteristics that attract manufacturers employment increase between 2010 and 2014, achieving to the region. Military veterans are often well prepared a 2014 total of 2,349 jobs (slightly over 1,000 more jobs for manufacturing roles when they return to the civil- than it had in 1990). Food Manufacturing showed a similar ian workforce. San Diego’s close proximity to machine pattern with job losses between 1990 and 2010, followed shops in Mexico that can take advantage of low labor by a 63.6 percent employment increase between 2010 costs has allowed for the formation of cross-border and 2014, achieving a 2014 total of 4,744 jobs (slightly supply chains. Life sciences research taking place at UC over 1,100 more jobs than it had in 1990). San Diego and the Salk Institute for Biological Studies has also created a strong cluster of biotechnology and pharmaceutical companies in the region.

78 California Manufacturing Regional Clusters Analysis

San Diego Area Manufacturing Employment Change by Sector, 2010–2014

25,000 Computers & Electronics

20,000

Transportation Equipment 15,000 Miscellaneous Medical Equipment Printing Machinery 10,000 Non- Fabricated Metals metallic Pharmaceutical & Medicine Minerals Textiles Food Wood 5,000 Petroleum & Paper Furniture & Coal Beverages

Manufacturing Sector Employment Size Primary Metal Chemicals Plastics 0 -40% -20% 0% 20% 40% 60% 80% 100% 120% 140% 160%

Employment Change from 2010 to 2014 Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

San Diego Area Manufacturing Employment by Sector, 1990–2014

120,000 Petroleum & Coal Products Mfg. Primary Metal Mfg. Wood & Paper Products Mfg. 100,000 Beverage Mfg. Chemical Mfg. Nonmetallic Mineral Product Mfg. 80,000 Pharmaceutical & Medicine Mfg. Plastics & Rubber Products Mfg. Apparel, Textile, & Leather Mfg. 60,000 Food Mfg. Machinery Mfg. Miscellaneous Mfg. 40,000 Furniture & Related Product Mfg. Fabricated Metal Product Mfg. Medical Equipment & Supplies Mfg. 20,000 Printing & Related Support Activities Transportation Equipment Mfg. Computer & Electronic Product Mfg. 0

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

79 Reinventing Manufacturing

San Diego Area Manufacturing Establishments by Sector, 1990–2014

4,500 Petroleum & Coal Products Mfg. Primary Metal Mfg. 4,000 Beverage Mfg. Chemical Mfg. 3,500 Nonmetallic Mineral Product Mfg. Wood & Paper Products Mfg. 3,000 Pharmaceutical & Medicine Mfg. Plastics & Rubber Products Mfg. 2,500 Transportation Equipment Mfg. Medical Equipment & Supplies Mfg. 2,000 Apparel, Textile, & Leather Mfg. Furniture & Related Product Mfg. 1,500 Machinery Mfg. Food Mfg. 1,000 Miscellaneous Mfg. Printing & Related Support Activities 500 Fabricated Metal Product Mfg. Computer & Electronic Product Mfg. 0

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

80 California Manufacturing Regional Clusters Analysis

Central Coast The Central Coast region consists of Monterey, noticeably higher than their employment numbers for San Benito, San Luis Obispo, Santa Barbara, and 1990 (170 and 504, respectively). Robust job growth Santa Cruz Counties. Manufacturing in the region is between 2010 and 2014 also occurred in Medical largely tied to agriculture, but with more specialized Equipment & Supplies Manufacturing (+182.3 percent), products than manufacturing in the Central Valley. Apparel, Textile, & Leather Manufacturing (+137.0 High-value products, such as lettuce, artichokes, and percent), and Transportation Equipment Manufacturing asparagus, are grown and processed in the region, (+118.4 percent). In those three sectors, however, the and the Central Coast is also home to manufacturers jobs gained represent a start at recovery from job losses specializing in agricultural field equipment and over the long term (1990–2014) rather than net gains. packaging. In 2014, the Central Coast’s manufacturing sectors provided 23,460 jobs, and manufacturing For the three Central Coast manufacturing sectors accounted for 4.1 percent of jobs in the region. with the largest number of jobs overall, the growth experience was mixed. Computer & Electronic Product In addition to agriculture-related companies, the Central Manufacturing contracted by 28.4 percent over the Coast has many manufacturers that are small in size but long-term period from 1990 to 2014, and its 5.3 percent produce niche products at a high margin. In the Santa job growth between 2010 and 2014 did not allow it to Cruz area, specialty makers of electric-powered motor- fully bounce back. In contrast, the Beverage Manufac- cycles, surfboards, and skateboards are world leaders turing sector did not experience contraction during the in their respective fields. In the Monterey area, marine- long-term period, and in the 2010–2014 time period related manufacturing supports marine research that it expanded by 26.5 percent, adding over 900 jobs. is conducted in Monterey Bay. Further south, San Luis Although maintaining its status as the third largest Cen- Obispo County is well known for its wine and beverage tral Coast manufacturing sector, measured by employ- industries, while Santa Barbara County has a growing ment, the Food Manufacturing sector experienced only Computer & Electronic Product Manufacturing sector, employment contraction, both in the long-term period which is closely linked to technology commercialization (-63.4 percent) and in the recent time period since 2010 programs at UC Santa Barbara. (-11.0 percent).

Measured by employment, the three largest manufacturing sectors in the Central Coast region are Computer & Electronic Product Manufacturing, Beverage Manu- facturing, and Food Manufacturing. Together these three sectors account for 56.5 percent of manufacturing employment in the region.

In the 2010–2014 time period, strong employment growth occurred across a range of manufacturing sectors in the Central Coast region. The fastest growing sectors were Chemical Manufacturing (excluding Phar- maceutical & Medicine Manufacturing), which increased by 331.8 percent (to a 2014 total of 747 jobs), and Wood & Paper Products Manufacturing, which grew by 215.8 percent (to a 2014 total of 818 jobs). While both of these sectors experienced job losses in a few of the years between 1990 and 2014, their overall growth experiences both resulted in 2014 total job numbers

81 Reinventing Manufacturing

Central Coast Manufacturing Employment Change by Sector, 2010–2014

6,000 Computers & Electronics

5,000 Beverages

Food 4,000

3,000 Pharmaceutical Fabricated Metals & Medicine Transportation Equipment 2,000 Printing Miscellaneous MedicalEquipment Petroleum & Coal Machinery Wood & Paper Chemicals Textiles Nonmetallic 1,000 Furniture Minerals Manufacturing Sector Employment Size Plastics Primary Metal 0 -100% -50% 0% 50% 100% 150% 200% 250% 300% 350% 400%

Employment Change from 2010 to 2014 Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

Central Coast Manufacturing Employment by Sector, 1990–2014

35,000 Medical Equipment & Supplies Mfg. Miscellaneous Mfg. 30,000 Furniture & Related Product Mfg. Transportation Equipment Mfg. Computer & Electronic Product Mfg. 25,000 Machinery Mfg. Fabricated Metal Product Mfg. 20,000 Primary Metal Mfg. Nonmetallic Mineral Product Mfg. Plastics & Rubber Products Mfg. 15,000 Pharmaceutical & Medicine Mfg. Chemical Mfg. 10,000 Petroleum & Coal Products Mfg. Printing & Related Support Activities Wood & Paper Products Mfg. 5,000 Apparel, Textile, & Leather Mfg. Beverage Mfg. Food Mfg. 0

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

82 California Manufacturing Regional Clusters Analysis

Central Coast Manufacturing Establishments by Sector, 1990–2014

2,000 Primary Metal Mfg. 1,800 Pharmaceutical & Medicine Mfg. Petroleum & Coal Products Mfg. 1,600 Plastics & Rubber Products Mfg. Chemical Mfg. 1,400 Transportation Equipment Mfg. Nonmetallic Mineral Product Mfg. 1,200 Apparel, Textile, & Leather Mfg. Wood & Paper Products Mfg. 1,000 Medical Equipment & Supplies Mfg. 800 Furniture & Related Product Mfg. Machinery Mfg. 600 Miscellaneous Mfg. Printing & Related Support Activities 400 Fabricated Metal Product Mfg. Food Mfg. 200 Computer & Electronic Product Mfg. Beverage Mfg. 0

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

83 Reinventing Manufacturing

Sacramento Area Located close to the Bay Area’s technology hub In 2014, the manufacturing sector in the Sacramento and the Central Valley’s agricultural strength, the Area provided 21,145 jobs. A portion of the Bay Area’s Sacramento Area has carved out a manufacturing niche Computer & Electronic Product Manufacturing base is at the convergence of technology and agriculture. spreading to the Sacramento region, and employment The Sacramento Area is defined as El Dorado, Placer, in the sector expanded by 88.4 percent between 2010 Sacramento, Sutter, and Yolo Counties. While account- and 2014. With a total of 4,341 jobs in 2014, Computer ing for only 2.4 percent of jobs in the region—the & Electronic Product Manufacturing is the largest manu- lowest regional share in the state—manufacturing in the facturing sector in the region. Sacramento Area has seen strong employment growth. Measured by 2014 employment, Fabricated Metal Bayer CropScience opened a new biologics lab in West Product Manufacturing and Wood & Paper Products Sacramento in 2014 to produce seed prototypes and Manufacturing are the second and third largest new crop protectants. Additionally, the area’s proxim- manufacturing sectors in the region, with 3,052 and ity to the Food Science and Technology Division at UC 2,131 jobs respectively. Davis makes it attractive for high-value-added manufacturers, such as those involved in agricultural genetics, In terms of number of establishments in 2014, advanced food processing, and food storage and safety. Fabricated Metal Product Manufacturing leads the region with 208 establishments and Printing & Related The region’s advantages include high-quality water Support Activities follows with 152 establishments. for food production, easy access to fresh food inputs, affordable energy from a municipally-owned utility, The strongest manufacturing employment growth in the availability of industrial space, and proximity to a local Sacramento Area was in the Pharmaceutical & Medicine market of consumers who value high-quality food prod- Manufacturing sector, which grew by 147.7 percent ucts. These offerings have made the Sacramento Area between 2010 and 2014. very attractive for both domestic and international food producers. Access to the Bay Area’s technology and investment community is another plus.

84 California Manufacturing Regional Clusters Analysis

Sacramento Area Manufacturing Employment Change by Sector, 2010–2014

5,000 Computers & Electronics 4,500

4,000

3,500 Fabricated Metals 3,000 Food 2,500 Wood & Paper Beverages 2,000 Machinery Printing Medical Equipment 1,500 Nonmetallic Minerals Miscellaneous Transportation Furniture 1,000 Pharmaceutical Textiles & Medicine Plastics Manufacturing Sector Employment Size 500 Petroleum & Coal Chemicals Primary Metal 0 -100% -50% 0% 50% 100% 150% 200%

Employment Change from 2010 to 2014 Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

Sacramento Area Manufacturing Employment by Sector, 1990–2014

35,000 Pharmaceutical & Medicine Mfg. Chemical Mfg. 30,000 Petroleum & Coal Products Mfg. Primary Metal Mfg. Plastics & Rubber Products Mfg. 25,000 Miscellaneous Mfg. Medical Equipment & Supplies Mfg. 20,000 Machinery Mfg. Apparel, Textile, & Leather Mfg. Transportation Equipment Mfg. 15,000 Nonmetallic Mineral Product Mfg. Beverage Mfg. 10,000 Fabricated Metal Product Mfg. Furniture & Related Product Mfg. Printing & Related Support Activities 5,000 Food Mfg. Computer & Electronic Product Mfg. Wood & Paper Products Mfg. 0

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

85 Reinventing Manufacturing

Sacramento Area Manufacturing Establishments by Sector, 1990–2014

2,000 Primary Metal Mfg. 1,800 Pharmaceutical & Medicine Mfg. Petroleum & Coal Products Mfg. 1,600 Plastics & Rubber Products Mfg. Chemical Mfg. 1,400 Transportation Equipment Mfg. Apparel, Textile, & Leather Mfg. 1,200 Nonmetallic Mineral Product Mfg. 1,000 Miscellaneous Mfg. Beverage Mfg. 800 Wood & Paper Products Mfg. Medical Equipment & Supplies Mfg. 600 Furniture & Related Product Mfg. Machinery Mfg. 400 Food Mfg. Computer & Electronic Product Mfg. 200 Printing & Related Support Activities 0 Fabricated Metal Product Mfg.

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

86 California Manufacturing Regional Clusters Analysis

Northern California Northern California is defined as Butte, Colusa, (-75.5 percent) and establishments (-50.6 percent over Del Norte, Glenn, Humboldt, Lake, Lassen, Mendocino, the 1990–2014 long term period and experienced only Modoc, Plumas, Shasta, Siskiyou, Tehama, Trinity, and modest growth during the 2010–2014 recent period Yuba Counties. As of 2014, manufacturing accounted with a 1.0 percent increase in employment and a 1.1 for 13,491 jobs in the region, or 4.0 percent of employ- percent increase in establishments. ment. Measured by 2014 employment, Food Manu- facturing (with 3,608 jobs) and Wood & Paper Product Beverage Manufacturing is Northern California’s fastest Manufacturing (with 3,531 jobs) are the largest Northern growing manufacturing sector, and experienced growth California manufacturing sectors, each making up over in both employment and establishments during the long- 25 percent of manufacturing employment in the region. term period from 1990 to 2014. Driven by both vintners and brewers, employment in Beverage Manufacturing Over the long term between 1990 and 2014, Food has experienced particularly strong recent growth, ex- Manufacturing in Northern California experienced little panding by 91 percent between 2010 and 2014. During or no change in employment and had a 4.2 percent that same recent time period, the number of Beverage decrease in number of establishments. However, in the Manufacturing establishments expanded by 29 percent. 2010–2014 time period, Food Manufacturing in the region experienced growth on both fronts, with a 24.9 Machinery Manufacturing provided 499 jobs in Northern percent increase in employment and a 17.9 percent California in 2014 and expanded employment by 49.4 increase in establishments. In contrast, as the timber percent between 2010 and 2014, making it Northern industry declined, Wood & Paper Product Manufactur- California’s second fastest growing manufacturing ing in the region saw decreases in both employment sector, measured by employment.

Northern California Manufacturing Employment Change by Sector, 2010–2014

4,000 Wood & Paper Food 3,500

3,000

2 ,500 Beverages Furniture 2,000 Transportation Equipment Chemicals Miscellaneous 1,500 Computers Fabricated Metals & Electronics Medical 1,000 Equip- Manufacturing Sector Employment Size Nonmetallic Minerals Machinery ment Printing 500 Primary Metal Plastics Pharmaceutical & Medicine Textiles Petroleum & Coal 0 -40% -20% 0% 20% 40% 60% 80% 100%

Employment Change from 2010 to 2014 Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

87 Reinventing Manufacturing

Northern California Manufacturing Employment by Sector, 1990–2014

25,000 Primary Metal Mfg. Pharmaceutical & Medicine Mfg. Chemical Mfg. 20,000 Petroleum & Coal Products Mfg. Apparel, Textile, & Leather Mfg. Transportation Equipment Mfg. Plastics & Rubber Products Mfg. 15,000 Medical Equipment & Supplies Mfg. Machinery Mfg. Miscellaneous Mfg. 10,000 Nonmetallic Mineral Product Mfg. Printing & Related Support Activities Fabricated Metal Product Mfg. Furniture & Related Product Mfg. 5,000 Beverage Mfg. Computer & Electronic Product Mfg. Food Mfg. Wood & Paper Products Mfg. 0

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

Northern California Manufacturing Establishments by Sector, 1990–2014

1,400 Pharmaceutical & Medicine Mfg. Petroleum & Coal Products Mfg. 1,200 Primary Metal Mfg. Plastics & Rubber Products Mfg. Apparel, Textile, & Leather Mfg. 1,000 Chemical Mfg. Medical Equipment & Supplies Mfg. 800 Transportation Equipment Mfg. Computer & Electronic Product Mfg. Miscellaneous Mfg. 600 Printing & Related Support Activities Machinery Mfg. 400 Nonmetallic Mineral Product Mfg. Furniture & Related Product Mfg. Wood & Paper Products Mfg. 200 Beverage Mfg. Fabricated Metal Product Mfg. 0 Food Mfg.

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

88 Title of Current Report Section

89 Reinventing Manufacturing

APPENDIX A Interviews

Mike Ammann – President, San Joaquin Partnership Kirk Klug – Director, Business Development, Siemens Jose Anaya – Dean of Community Advancement, Stewart Knox – Executive Director, Employment Training Panel El Camino College Ralf Kuschnereit – Head of Ophthalmic Systems Division, Geoff Annesley – General Manager of Manufacturing, E2open Carl Zeiss Meditec Tom Baruch – Partner Emeritus / Strategic Advisor, Formation 8 John Lang – Chief Economist, City of San Jose Mark Benguerel – Chief Operating Officer, FineLite Tony Livoti – President, Monterey Bay International Trade Association Bob Burris – Senior Vice President, SACTO Gail Maderas – President & CEO, BayBio Michael Cahill – President, Rail Systems Division, Siemens Marc Madou – Chancellor’s Professor, UC Irvine Betsy Cantwell – Director for Economic Development, Lawrence Livermore National Laboratory David Mann – Director, Organization & Talent Development, Topcon Positioning Systems Brandon Cardwell – Executive Director, i-GATE iHub Greg Matter – Executive Vice President, Jones Lang LaSalle Jacqueline Debets – Economic Development Coordinator, Humboldt County Leonard Mitchell – Executive Director, USC Center for Economic Development Patrick Dempsey – Director of Strategic Engagements, Lawrence Livermore National Laboratory David Moates – Consultant, California Manufacturing Technology Consulting David Dornfeld – Professor of Mechanical Engineering, UC-Berkeley David Moore – Founder, Zero-Nine Design Mike Dozier – Office of Community & Economic Development, Rich Moore – Engineering Manager, Scandic Springs Fresno State University Jessica Pitt – Regional Workforce Coordinator, Design It – Rob Eyler – Director of Center for Regional Economic Analysis, Build It – Ship It Sonoma State University Ramesh Ramamoorthy – Associate Laboratory Director, David Ginsberg – Vice President of Supply Chain Management, Lawrence Berkeley National Laboratory Sonic Manufacturing Rich Robbins – President, Wareham Development Jesse Gipe – Manager, Economic Development, San Diego EDC Hannalore Rodriguez-Farrar – Senior Advisor for Strategy and Ken Gracey – President, Parallax Planning, Dominican University David Flaks – President & Chief Operating Officer, LAEDC Dorothy Rothrock – President, California Manufacturers & Technology Association Mark Hatch – CEO, TechShop William Ruh – Chief Digital Officer, General Electric Rene van den Hoevel – Managing Director, German American Chamber of Commerce Gene Russell – President & CEO, The Corporation for Manufacturing Excellence - Manex Krisztina Holly – Entrepreneur-in-Residence, City of Los Angeles Mayor’s Office Kate Sofis – Executive Director, SFMade Dion Jackson – Associate, University of Southern California Chris Stewart – Chairman & CEO, Center for Economic Development North Bay Life Science Alliance Jimmy Jackson – Sr. Vice President of Public Policy, Biocom Greg Theyel – Program Director, Biomedical Manufacturing Network Chris Johnson – Senior Director Government and Civic Engagement, Jabil Audrey Taylor – President & CEO, Chabin Concepts Mike Keer – Founder & CEO, Product Realization Group Rick Urban – COO/CFO, Quality Controlled Manufacturing, Inc. Fariba Khoie – Bond Programs Manager, Jim Watson – President & CEO, California Manufacturing California Infrastructure and Economic Development Bank Technology Consulting Kelly Kline – Economic Development Director, City of Fremont

90 Appendix B: Methodology

APPENDIX B Methodology

Data Source Establishments Data on employment, establishments, and wages is An establishment is an economic unit, such as a farm, from a custom tabulation of the Quarterly Census of mine, factory, or store that produces goods or pro- Employment and Wages (QCEW) provided to the vides services. It is typically at a single physical location Institute by the California Employment Development address and is engaged in one or predominantly one Department, Labor Market Information Division. The type of economic activity for which a single industry Quarterly Census of Employment and Wages (QCEW) classification may be applied. Occasionally, a single Program is a federal/state cooperative program physical location address encompasses two or more between the US Department of Labor’s Bureau of Labor distinct and significant activities. Each activity should be Statistics (BLS) and the California EDD’s Labor Market reported as a separate establishment if separate records Information Division (LMID). The QCEW program are kept and the various activities are classified under produces a comprehensive tabulation of employment different NAICS codes. and wage information for workers covered by California Unemployment Insurance (UI) laws and federal workers Patent Activity covered by the Unemployment Compensation for Federal Employees (UCFE) program. Patent registration information covering location and investor sequence number was provided by the US Employment and Wages Patent and Trademark Office. Patent counts refer to utility patents only. Employment data under the QCEW program represents the number of the state’s UI covered workers who worked during, or received pay for, the pay period which includes the 12th of the month. Excluded are members of the armed forces, the self-employed, proprietors, domestic workers, and unpaid family workers. Railroad workers covered by the Railroad Unem- ployment Insurance system are also excluded. Wages represent total compensation paid during the calendar quarter, regardless of when services were performed. Included in wages is compensation for vacation and other paid leave, bonuses, stock options, tips, the cash value of meals, and lodging.

Workers on the payroll of more than one firm during the period are counted by each UI subject employer if they meet the employment definition noted above. Workers are counted even though, in the latter months of the year, their wages may not be subject to unemployment insurance tax. The employment count excludes workers who earned no wages during the entire applicable pay period because of work stoppages, temporary layoffs, illness, or unpaid vacations.

91 Reinventing Manufacturing

APPENDIX C California Manufacturing Regional Clusters Tables

Employment Change by Manufacturing Sector, Los Angeles Area 1990–2014

Employment % Change % Change 1990 2010 2014 1990–2014 2010–2014 History 1990–2014 Beverage Mfg. 8,491 7,389 8,651 1.9% 17.1% Miscellaneous Mfg. 22,277 12,650 14,623 -34.4% 15.6% Fabricated Metal Product Mfg. 91,171 53,699 60,962 -33.1% 13.5% Furniture & Related Product Mfg. 44,431 17,889 19,676 -55.7% 10.0% Petroleum & Coal Products Mfg. 11,674 4,588 4,996 -57.2% 8.9% Nonmetallic Mineral Product Mfg. 25,152 11,049 11,970 -52.4% 8.3% Chemical Mfg. (excl. Pharmaceutical 24,649 16,023 17,038 -30.9% 6.3% and Medicine Mfg.) Primary Metal Mfg. 22,780 10,995 11,530 -49.4% 4.9% Machinery Mfg. 43,471 23,069 24,100 -44.6% 4.5% Pharmaceutical & Medicine Mfg. 8,346 15,159 15,803 89.3% 4.2% Apparel, Textile, & Leather Mfg. 116,581 56,348 58,565 -49.8% 3.9% Transportation Equipment Mfg. 164,088 51,561 52,826 -67.8% 2.5% Plastics & Rubber Products Mfg. 37,205 22,458 22,725 -38.9% 1.2%

Total Mfg. in the Region 941,124 475,613 478,919 -49.1% 0.7% Food Mfg. 62,641 46,986 46,836 -25.2% -0.3% Wood & Paper Products Mfg. 35,634 17,160 16,602 -53.4% -3.3% Printing & Related Support Activities 41,571 19,973 18,311 -56.0% -8.3% Medical Equipment & Supplies Mfg. 15,153 14,724 12,819 -15.4% -12.9% Computer & Electronic Product Mfg. 165,809 73,893 60,886 -63.3% -17.6%

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

92 Appendix C: California Manufacturing Regional Clusters Tables

Establishments Change by Manufacturing Sector, Los Angeles Area 1990–2014

Establishments % Change % Change 1990 2010 2014 1990–2014 2010–2014 History 1990–2014 Beverage Mfg. 96 117 190 97.9% 62.4% Food Mfg. 1,349 1,305 1,353 0.3% 3.7% Computer & Electronic Product Mfg. 1,932 1,341 1,338 -30.7% -0.2% Machinery Mfg. 1,594 1,119 1,111 -30.3% -0.7% Chemical Mfg. (excl. Pharmaceutical 595 585 574 -3.5% -1.9% and Medicine Mfg.) Pharmaceutical & Medicine Mfg. 94 132 129 37.2% -2.3% Miscellaneous Mfg. 985 938 908 -7.8% -3.2% Medical Equipment & Supplies Mfg. 697 557 537 -23.0% -3.6% Fabricated Metal Product Mfg. 3,716 2,801 2,688 -27.7% -4.0% Plastics & Rubber Products Mfg. 871 629 598 -31.3% -4.9% Petroleum & Coal Products Mfg. 88 80 76 -13.6% -5.0%

Total Mfg. in the Region 23,698 17,665 16,650 -29.7% -5.7% Transportation Equipment Mfg. 1,108 815 757 -31.7% -7.1% Wood & Paper Products Mfg. 758 600 553 -27.0% -7.8% Printing & Related Support Activities 2,651 1,492 1,370 -48.3% -8.2% Nonmetallic Mineral Product Mfg. 584 496 440 -24.7% -11.3% Apparel, Textile, & Leather Mfg. 4,490 3,300 2,880 -35.9% -12.7% Primary Metal Mfg. 400 336 287 -28.3% -14.6% Furniture & Related Product Mfg. 1,690 1,022 861 -49.1% -15.8%

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

93 Reinventing Manufacturing

Employment Change by Manufacturing Sector, Bay Area 1990–2014

Employment % Change % Change 1990 2010 2014 1990–2014 2010–2014 History 1990–2014 Transportation Equipment Mfg. 2,867 1,063 1,529 -46.7% 43.8% Nonmetallic Mineral Product Mfg. 9,653 4,438 5,825 -39.7% 31.3% Beverage Mfg. 11,829 17,774 20,793 75.8% 17.0% Machinery Mfg. 17,771 14,295 16,708 -6.0% 16.9% Food Mfg. 32,247 20,506 23,798 -26.2% 16.1% Furniture & Related Product Mfg. 7,272 3,932 4,254 -41.5% 8.2% Fabricated Metal Product Mfg. 25,458 18,896 20,347 -20.1% 7.7% Pharmaceutical & Medicine Mfg. 9,095 16,204 17,324 90.5% 6.9% Apparel, Textile, & Leather Mfg. 17,289 3,425 3,649 -78.9% 6.5%

Total Mfg. in the Region 426,428 280,399 293,847 -31.1% 4.8% Computer & Electronic Product Mfg. 213,624 134,474 139,271 -34.8% 3.6% Medical Equipment & Supplies Mfg. 10,263 11,284 11,437 11.4% 1.4% Printing & Related Support Activities 20,458 7,464 7,531 -63.2% 0.9% Wood & Paper Products Mfg. 9,702 4,600 4,544 -53.2% -1.2% Chemical Mfg. (excl. Pharmaceutical 11,858 4,040 3,828 -67.7% -5.2% and Medicine Mfg.) Primary Metal Mfg. 1,979 1,392 1,284 -35.1% -7.8% Miscellaneous Mfg. 4,945 4,118 3,408 -31.1% -17.2% Plastics & Rubber Products Mfg. 7,456 4,042 3,231 -56.7% -20.1% Petroleum & Coal Products Mfg. 12,662 8,452 5,086 -59.8% -39.8%

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

94 Appendix C: California Manufacturing Regional Clusters Tables

Establishments Change by Manufacturing Sector, Bay Area 1990–2014

Establishments % Change % Change 1990 2010 2014 1990–2014 2010–2014 History 1990–2014 Beverage Mfg. 329 690 890 170.5% 29.0% Food Mfg. 827 696 764 -7.6% 9.8% Machinery Mfg. 659 491 512 -22.3% 4.3% Chemical Mfg. (excl. Pharmaceutical 243 201 208 -14.4% 3.5% and Medicine Mfg.) Computer & Electronic Product Mfg. 1,984 1,572 1,576 -20.6% 0.3% Wood & Paper Products Mfg. 354 228 227 -35.9% -0.4%

Total Mfg. in the Region 11,229 8,309 8,257 -26.5% -0.6% Nonmetallic Mineral Product Mfg. 343 274 271 -21.0% -1.1% Medical Equipment & Supplies Mfg. 484 415 410 -15.3% -1.2% Transportation Equipment Mfg. 226 138 136 -39.8% -1.4% Fabricated Metal Product Mfg. 1,632 1,279 1,226 -24.9% -4.1% Miscellaneous Mfg. 450 377 340 -24.4% -9.8% Pharmaceutical & Medicine Mfg. 61 129 116 90.2% -10.1% Plastics & Rubber Products Mfg. 293 148 133 -54.6% -10.1% Printing & Related Support Activities 1,550 738 645 -58.4% -12.6% Apparel, Textile, & Leather Mfg. 950 379 329 -65.4% -13.2% Furniture & Related Product Mfg. 665 417 361 -45.7% -13.4% Petroleum & Coal Products Mfg. 70 52 44 -37.1% -15.4% Primary Metal Mfg. 109 85 69 -36.7% -18.8%

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

95 Reinventing Manufacturing

Employment Change by Manufacturing Sector, Orange County 1990–2014

Employment % Change % Change 1990 2010 2014 1990–2014 2010–2014 History 1990–2014 Medical Equipment & Supplies Mfg. 10,269 12,344 16,854 64.1% 36.5% Primary Metal Mfg. 1,016 401 495 -51.3% 23.4% Wood & Paper Products Mfg. 4,928 2,594 3,178 -35.5% 22.5% Food Mfg. 5,271 5,254 6,059 14.9% 15.3% Fabricated Metal Product Mfg. 23,870 20,064 22,976 -3.7% 14.5% Transportation Equipment Mfg. 27,036 8,144 9,072 -66.4% 11.4%

Total Mfg. in the Region 222,006 134,770 141,810 -36.1% 5.2% Furniture & Related Product Mfg. 10,732 3,286 3,451 -67.8% 5.0% Machinery Mfg. 11,879 8,321 8,588 -27.7% 3.2% Miscellaneous Mfg. 4,879 3,984 4,073 -16.5% 2.2% Plastics & Rubber Products Mfg. 13,207 7,633 7,799 -40.9% 2.2% Apparel, Textile, & Leather Mfg. 9,640 7,436 7,506 -22.1% 0.9% Chemical Mfg. (excl. Pharmaceutical 3,422 2,656 2,636 -23.0% -0.8% and Medicine Mfg.) Beverage Mfg. 1,969 1,349 1,302 -33.9% -3.5% Printing & Related Support Activities 12,210 8,299 8,000 -34.5% -3.6% Computer & Electronic Product Mfg. 70,679 36,860 35,099 -50.3% -4.8% Pharmaceutical & Medicine Mfg. 5,137 4,578 3,654 -28.9% -20.2% Nonmetallic Mineral Product Mfg. 4,149 1,144 872 -79.0% -23.8% Petroleum & Coal Products Mfg. 1,713 423 196 -88.6% -53.7%

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

96 Appendix C: California Manufacturing Regional Clusters Tables

Establishments Change by Manufacturing Sector, Orange County 1990–2014

Establishments % Change % Change 1990 2010 2014 1990–2014 2010–2014 History 1990–2014 Beverage Mfg. 20 21 42 110.0% 100.0% Petroleum & Coal Products Mfg. 21 16 22 4.8% 37.5% Food Mfg. 252 250 277 9.9% 10.8% Medical Equipment & Supplies Mfg. 242 255 272 12.4% 6.7% Chemical Mfg. (excl. Pharmaceutical 145 164 168 15.9% 2.4% and Medicine Mfg.) Computer & Electronic Product Mfg. 856 750 747 -12.7% -0.4% Miscellaneous Mfg. 251 292 286 13.9% -2.1% Fabricated Metal Product Mfg. 1,031 902 880 -14.6% -2.4%

Total Mfg. in the Region 6,102 4,996 4,857 -20.4% -2.8% Machinery Mfg. 542 388 371 -31.5% -4.4% Transportation Equipment Mfg. 306 248 236 -22.9% -4.8% Plastics & Rubber Products Mfg. 282 195 184 -34.8% -5.6% Printing & Related Support Activities 855 513 484 -43.4% -5.7% Primary Metal Mfg. 51 49 46 -9.8% -6.1% Wood & Paper Products Mfg. 200 163 151 -24.5% -7.4% Nonmetallic Mineral Product Mfg. 152 101 93 -38.8% -7.9% Pharmaceutical & Medicine Mfg. 37 63 56 51.4% -11.1% Furniture & Related Product Mfg. 383 222 197 -48.6% -11.3% Apparel, Textile, & Leather Mfg. 476 404 345 -27.5% -14.6%

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

97 Reinventing Manufacturing

Employment Change by Manufacturing Sector, Central Valley 1990–2014

Employment % Change % Change 1990 2010 2014 1990–2014 2010–2014 History 1990–2014 Pharmaceutical & Medicine Mfg. 154 – 90 -41.6% – Primary Metal Mfg. 637 270 516 -19.0% 91.1% Furniture & Related Product Mfg. 3,330 1,031 1,477 -55.6% 43.3% Printing & Related Support Activities 4,223 1,662 2,194 -48.0% 32.0% Apparel, Textile, & Leather Mfg. 1,878 296 390 -79.2% 31.8% Fabricated Metal Product Mfg. 8,872 6,679 8,526 -3.9% 27.7% Machinery Mfg. 6,232 4,960 6,318 1.4% 27.4% Beverage Mfg. 5,882 6,481 8,202 39.4% 26.6% Plastics & Rubber Products Mfg. 3,060 3,499 3,919 28.1% 12.0%

Total Mfg. in the Region 103,224 88,386 98,038 -5.0% 10.9% Wood & Paper Products Mfg. 7,960 6,214 6,707 -15.7% 7.9% Nonmetallic Mineral Product Mfg. 6,758 4,337 4,665 -31.0% 7.6% Food Mfg. 43,589 44,248 47,260 8.4% 6.8% Petroleum & Coal Products Mfg. 683 1,041 1,106 61.9% 6.2% Miscellaneous Mfg. 1,310 726 770 -41.2% 6.1% Chemical Mfg. (excl. Pharmaceutical 1,138 1,481 1,545 35.8% 4.3% and Medicine Mfg.) Computer & Electronic Product Mfg. 2,861 812 831 -71.0% 2.3% Medical Equipment & Supplies Mfg. 1,026 985 1,001 -2.4% 1.6% Transportation Equipment Mfg. 3,631 3,664 2,521 -30.6% -31.2%

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

98 Appendix C: California Manufacturing Regional Clusters Tables

Establishments Change by Manufacturing Sector, Central Valley 1990–2014

Establishments % Change % Change 1990 2010 2014 1990–2014 2010–2014 History 1990–2014 Beverage Mfg. 90 146 201 123.3% 37.7% Plastics & Rubber Products Mfg. 93 97 108 16.1% 11.3% Miscellaneous Mfg. 97 101 107 10.3% 5.9% Apparel, Textile, & Leather Mfg. 138 71 75 -45.7% 5.6% Food Mfg. 481 542 571 18.7% 5.4% Machinery Mfg. 267 216 221 -17.2% 2.3% Computer & Electronic Product Mfg. 110 100 101 -8.2% 1.0%

Total Mfg. in the Region 2,978 2,734 2,743 -7.9% 0.3% Chemical Mfg. (excl. Pharmaceutical 73 92 92 26.0% 0.0% and Medicine Mfg.) Pharmaceutical & Medicine Mfg. 12 8 8 -33.3% 0.0% Printing & Related Support Activities 315 168 167 -47.0% -0.6% Medical Equipment & Supplies Mfg. 117 90 88 -24.8% -2.2% Petroleum & Coal Products Mfg. 30 43 42 40.0% -2.3% Fabricated Metal Product Mfg. 402 442 425 5.7% -3.8% Transportation Equipment Mfg. 111 110 105 -5.4% -4.5% Wood & Paper Products Mfg. 191 174 154 -19.4% -11.5% Nonmetallic Mineral Product Mfg. 140 136 116 -17.1% -14.7% Primary Metal Mfg. 39 50 42 7.7% -16.0% Furniture & Related Product Mfg. 272 148 120 -55.9% -18.9%

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

99 Reinventing Manufacturing

Employment Change by Manufacturing Sector, San Diego Area 1990–2014

Employment % Change % Change 1990 2010 2014 1990–2014 2010–2014 History 1990–2014 Petroleum & Coal Products Mfg. 50 – 80 60.0% – Beverage Mfg. 1,346 955 2,349 74.5% 146.0% Food Mfg. 3,637 2,899 4,744 30.4% 63.6% Chemical Mfg. (excl. Pharmaceutical 1,471 643 871 -40.8% 35.5% and Medicine Mfg.) Primary Metal Mfg. 407 545 653 60.4% 19.8% Fabricated Metal Product Mfg. 5,648 5,335 6,184 9.5% 15.9% Pharmaceutical & Medicine Mfg. 1,924 5,110 5,903 206.8% 15.5% Apparel, Textile, & Leather Mfg. 3,256 1,856 2,040 -37.3% 9.9% Machinery Mfg. 3,801 6,446 7,064 85.8% 9.6% Furniture & Related Product Mfg. 4,759 1,623 1,745 -63.3% 7.5% Medical Equipment & Supplies Mfg. 5,918 5,855 6,241 5.5% 6.6%

Total Mfg. in Region 96,940 82,450 84,615 -12.7% 2.6% Miscellaneous Mfg. 3,826 4,348 4,452 16.4% 2.4% Transportation Equipment Mfg. 18,913 13,166 13,152 -30.5% -0.1% Printing & Related Support Activities 6,375 3,291 3,053 -52.1% -7.2% Computer & Electronic Product Mfg. 30,211 25,432 22,134 -26.7% -13.0% Wood & Paper Products Mfg. 1,260 882 756 -40.0% -14.3% Nonmetallic Mineral Product Mfg. 1,922 1,652 1,413 -26.5% -14.5% Plastics & Rubber Products Mfg. 2,216 2,412 1,781 -19.6% -26.2%

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

100 Appendix C: California Manufacturing Regional Clusters Tables

Establishments Change by Manufacturing Sector, San Diego Area 1990–2014

Establishments % Change % Change 1990 2010 2014 1990–2014 2010–2014 History 1990–2014 Beverage Mfg. 20 27 68 240.0% 151.9% Petroleum & Coal Products Mfg. 16 7 12 -25.0% 71.4% Food Mfg. 198 178 218 10.1% 22.5% Pharmaceutical & Medicine Mfg. 44 75 91 106.8% 21.3% Primary Metal Mfg. 29 28 33 13.8% 17.9% Machinery Mfg. 191 187 211 10.5% 12.8% Computer & Electronic Product Mfg. 488 481 503 3.1% 4.6%

Total Mfg. in the Region 3,458 3,046 3,096 -10.5% 1.6% Fabricated Metal Product Mfg. 436 417 420 -3.7% 0.7% Miscellaneous Mfg. 215 249 247 14.9% -0.8% Medical Equipment & Supplies Mfg. 162 165 163 0.6% -1.2% Apparel, Textile, & Leather Mfg. 279 178 171 -38.7% -3.9% Transportation Equipment Mfg. 165 169 162 -1.8% -4.1% Printing & Related Support Activities 545 312 295 -45.9% -5.4% Wood & Paper Products Mfg. 119 88 83 -30.3% -5.7% Plastics & Rubber Products Mfg. 106 101 93 -12.3% -7.9% Chemical Mfg. (excl. Pharmaceutical 63 78 70 11.1% -10.3% and Medicine Mfg.) Furniture & Related Product Mfg. 285 203 174 -38.9% -14.3% Nonmetallic Mineral Product Mfg. 97 103 82 -15.5% -20.4%

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

101 Reinventing Manufacturing

Employment Change by Manufacturing Sector, Central Coast 1990–2014

Employment % Change % Change 1990 2010 2014 1990–2014 2010–2014 History 1990–2014 Chemical Mfg. (excl. Pharmaceutical 170 173 747 339.4% 331.8% and Medicine Mfg.) Wood & Paper Products Mfg. 504 259 818 62.3% 215.8% Medical Equipment & Supplies Mfg. 798 203 573 -28.2% 182.3% Apparel, Textile, & Leather Mfg. 387 138 327 -15.5% 137.0% Transportation Equipment Mfg. 2,197 794 1,734 -21.1% 118.4% Beverage Mfg. 1,489 3,426 4,335 191.1% 26.5% Furniture & Related Product Mfg. 834 439 548 -34.3% 24.8% Machinery Mfg. 494 506 617 24.9% 21.9%

Total Mfg. in the Region 29,285 19,709 23,460 -19.9% 19.0% Miscellaneous Mfg. 843 1,036 1,223 45.1% 18.1% Printing & Related Support Activities 1,733 786 840 -51.5% 6.9% Fabricated Metal Product Mfg. 1,402 1,608 1,718 22.5% 6.8% Computer & Electronic Product Mfg. 7,474 5,081 5,352 -28.4% 5.3% Pharmaceutical & Medicine Mfg. – 308 311 – 1.0% Petroleum & Coal Products Mfg. 190 244 234 23.2% -4.1% Nonmetallic Mineral Product Mfg. 748 331 295 -60.6% -10.9% Food Mfg. 9,732 4,005 3,566 -63.4% -11.0% Plastics & Rubber Products Mfg. 290 372 222 -23.4% -40.3% Primary Metal Mfg. – – – – –

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

102 Appendix C: California Manufacturing Regional Clusters Tables

Establishments Change by Manufacturing Sector, Central Coast 1990–2014

Establishments % Change % Change 1990 2010 2014 1990–2014 2010–2014 History 1990–2014 Beverage Mfg. 64 218 297 364.1% 36.2% Petroleum & Coal Products Mfg. 6 11 13 116.7% 18.2% Machinery Mfg. 85 72 84 -1.2% 16.7% Wood & Paper Products Mfg. 50 47 53 6.0% 12.8% Food Mfg. 190 160 176 -7.4% 10.0% Computer & Electronic Product Mfg. 197 185 201 2.0% 8.6%

Total Mfg. in the Region 1,562 1,428 1,538 -1.5% 7.7% Miscellaneous Mfg. 80 82 86 7.5% 4.9% Medical Equipment & Supplies Mfg. 82 53 55 -32.9% 3.8% Chemical Mfg. (excl. Pharmaceutical 28 35 36 28.6% 2.9% and Medicine Mfg.) Nonmetallic Mineral Product Mfg. 80 47 47 -41.3% 0.0% Printing & Related Support Activities 178 100 97 -45.5% -3.0% Plastics & Rubber Products Mfg. 38 29 28 -26.3% -3.4% Fabricated Metal Product Mfg. 170 179 172 1.2% -3.9% Furniture & Related Product Mfg. 137 87 82 -40.1% -5.7% Apparel, Textile, & Leather Mfg. 103 51 47 -54.4% -7.8% Transportation Equipment Mfg. 56 45 41 -26.8% -8.9% Pharmaceutical & Medicine Mfg. 5 14 12 140.0% -14.3% Primary Metal Mfg. 13 13 11 -15.4% -15.4%

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

103 Reinventing Manufacturing

Employment Change by Manufacturing Sector, Sacramento Area 1990–2014

Employment % Change % Change 1990 2010 2014 1990–2014 2010–2014 History 1990–2014 Pharmaceutical & Medicine Mfg. 0 132 327 – 147.7% Computer & Electronic Product Mfg. 4,822 2,304 4,341 -10.0% 88.4% Petroleum & Coal Products Mfg. 134 43 64 -52.2% 48.8% Apparel, Textile, & Leather Mfg. 741 163 219 -70.4% 34.4% Transportation Equipment Mfg. 812 688 892 9.9% 29.7% Miscellaneous Mfg. 574 653 795 38.5% 21.7%

Total Mfg. in the Region 27,911 18,887 21,145 -24.2% 12.0% Fabricated Metal Product Mfg. 1,736 2,758 3,052 75.8% 10.7% Machinery Mfg. 712 1,192 1,318 85.1% 10.6% Food Mfg. 4,801 1,877 1,964 -59.1% 4.6% Medical Equipment & Supplies Mfg. 580 691 698 20.3% 1.0% Beverage Mfg. 1,130 1,668 1,678 48.5% 0.6% Wood & Paper Products Mfg. 5,593 2,257 2,131 -61.9% -5.6% Nonmetallic Mineral Product Mfg. 961 749 706 -26.5% -5.7% Printing & Related Support Activities 2,550 1,723 1,527 -40.1% -11.4% Plastics & Rubber Products Mfg. 363 673 539 48.5% -19.9% Furniture & Related Product Mfg. 2,127 1,000 759 -64.3% -24.1% Chemical Mfg. (excl. Pharmaceutical 113 316 135 19.5% -57.3% and Medicine Mfg.) Primary Metal Mfg. 162 – – -100.0% –

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

104 Appendix C: California Manufacturing Regional Clusters Tables

Establishments Change by Manufacturing Sector, Sacramento Area 1990–2014

Establishments % Change % Change 1990 2010 2014 1990–2014 2010–2014 History 1990–2014 Petroleum & Coal Products Mfg. 12 9 15 25.0% 66.7% Beverage Mfg. 30 52 74 146.7% 42.3% Apparel, Textile, & Leather Mfg. 124 49 53 -57.3% 8.2% Computer & Electronic Product Mfg. 120 131 139 15.8% 6.1% Chemical Mfg. (excl. Pharmaceutical 31 38 40 29.0% 5.3% and Medicine Mfg.) Medical Equipment & Supplies Mfg. 91 80 84 -7.7% 5.0% Food Mfg. 137 114 118 -13.9% 3.5% Fabricated Metal Product Mfg. 185 203 208 12.4% 2.5% Machinery Mfg. 93 105 107 15.1% 1.9% Miscellaneous Mfg. 61 72 70 14.8% -2.8%

Total Mfg. in the Region 1,713 1,442 1,386 -19.1% -3.9% Printing & Related Support Activities 275 172 152 -44.7% -11.6% Transportation Equipment Mfg. 73 53 43 -41.1% -18.9% Plastics & Rubber Products Mfg. 46 42 34 -26.1% -19.0% Nonmetallic Mineral Product Mfg. 69 79 62 -10.1% -21.5% Wood & Paper Products Mfg. 144 97 76 -47.2% -21.6% Primary Metal Mfg. 13 13 10 -23.1% -23.1% Furniture & Related Product Mfg. 201 116 89 -55.7% -23.3% Pharmaceutical & Medicine Mfg. 8 17 12 50.0% -29.4%

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

105 Reinventing Manufacturing

Employment Change by Manufacturing Sector, Northern California 1990–2014

Employment % Change % Change 1990 2010 2014 1990–2014 2010–2014 History 1990–2014 Petroleum & Coal Products Mfg. 59 – 11 -81.4% – Beverage Mfg. 1,099 1,072 2,047 86.3% 91.0% Machinery Mfg. 340 334 499 46.8% 49.4% Apparel, Textile, & Leather Mfg. 64 31 46 -28.1% 48.4% Food Mfg. 3,001 2,889 3,608 – 24.9% Fabricated Metal Product Mfg. 914 889 1,076 17.7% 21.0%

Total Mfg. in the Region 24,728 11,611 13,491 -45.4% 16.2% Nonmetallic Mineral Product Mfg. 518 463 517 -0.2% 11.7% Miscellaneous Mfg. 387 470 512 32.3% 8.9% Transportation Equipment Mfg. 181 215 224 23.8% 4.2% Furniture & Related Product Mfg. 926 268 271 -70.7% 1.1% Wood & Paper Products Mfg. 14,400 3,496 3,531 -75.5% 1.0% Printing & Related Support Activities 680 286 254 -62.6% -11.2% Chemical Mfg. (excl. Pharmaceutical – 184 144 – -21.7% and Medicine Mfg.) Computer & Electronic Product Mfg. 1,759 650 485 -72.4% -25.4% Medical Equipment & Supplies Mfg. 208 277 206 -1.0% -25.6% Plastics & Rubber Products Mfg. 192 87 60 -68.8% -31.0% Pharmaceutical & Medicine Mfg. – – – – – Primary Metal Mfg. – – – – –

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

106 Appendix C: California Manufacturing Regional Clusters Tables

Establishments Change by Manufacturing Sector, Northern California 1990–2014

Establishments % Change % Change 1990 2010 2014 1990–2014 2010–2014 History 1990–2014 Pharmaceutical & Medicine Mfg. 2 1 3 50.0% 200.0% Petroleum & Coal Products Mfg. 5 2 4 -20.0% 100.0% Primary Metal Mfg. 6 5 7 16.7% 40.0% Beverage Mfg. 45 85 110 144.4% 29.4% Food Mfg. 144 117 138 -4.2% 17.9% Chemical Mfg. (excl. Pharmaceutical 20 26 30 50.0% 15.4% and Medicine Mfg.) Transportation Equipment Mfg. 39 41 45 15.4% 9.8% Apparel, Textile, & Leather Mfg. 60 28 29 -51.7% 3.6% Wood & Paper Products Mfg. 180 88 89 -50.6% 1.1% Fabricated Metal Product Mfg. 140 121 122 -12.9% 0.8%

Total Mfg. in the Region 1,195 995 976 -18.3% -1.9% Plastics & Rubber Products Mfg. 25 18 17 -32.0% -5.6% Machinery Mfg. 58 63 57 -1.7% -9.5% Computer & Electronic Product Mfg. 57 59 53 -7.0% -10.2% Miscellaneous Mfg. 60 67 56 -6.7% -16.4% Printing & Related Support Activities 120 69 56 -53.3% -18.8% Nonmetallic Mineral Product Mfg. 60 74 58 -3.3% -21.6% Furniture & Related Product Mfg. 117 87 68 -41.9% -21.8% Medical Equipment & Supplies Mfg. 57 44 34 -40.4% -22.7%

Data Source: Quarterly Census of Employment & Wages, California EDD Analysis: Bay Area Council Economic Institute

107

Notes

1. As of March 2015, employment in manufacturing sectors totaled 14. Manyika, James, et al., “Disruptive technologies: Advances that 1,271,672 in California, representing 9.3 percent of the state’s total will transform life, business, and the global economy,” McKinsey employment. Texas followed with 887,901 production jobs, making Global Institute, May 2013. up 9.1 percent. (US Bureau of Labor Statistics, Quarterly Census of Employment and Wages). 15. Li, Shan, “More U.S. companies opening high-tech factories in Mexico,” Los Angeles Times, November 29, 2013, Online. 2. Ben-Shabat, Hana et al, “Connected Consumers Are Not Created Equal: A Global Perspective,” A. T. Kearney, November 2014, . Growth in the Second Quarter,” November 5, 2015, . 3. O’Meara, Bob, Raj Kumar, and Vishwa Chandra, “A World Where Products Go to Consumers Is Emerging,” Chain Drug Review, 17. Bureau of Labor Statistics, “Industries at a Glance: Manufacturing: Racher Press, Inc., 13 June 2014, . com/a-world-where-products-go-to-consumers-emerging/>. 18. Scott, Elizabeth and Howard Wial, “Multiplying Jobs: How 4. A.T. Kearney’s Reshoring Database is comprised of documented Manufacturing Contributes to Employment Growth in Chicago and the reshoring cases from different sources. For more on reshoring trends, Nation,” University of Illinois at Chicago, Center for Urban Economic see A.T. Kearney’s white paper “Solving the Reshoring Dilemma” and Development, May 2013; Bivens, Josh, “Updated Employment “The Truth about Reshoring” full report. Multipliers for the U.S. Economy,” Economic Policy Institute, August 2003; DeVol, Ross C. et al., “Manufacturing 2.0: A More Prosperous 5. The data is from “2010 World Robotics,” a survey made by the California,” Milken Institute, June 2009. International Federation of Robotics as reported by Jobin, Jean- Philippe, “Industrial Robots: 5 Most Popular Applications,” Robotiq 19. Bureau of Economic Analysis, “Industry-by-Industry Total Company Blog, Feb. 2014, . context.html>.

6. Mims, C., “How Robots Are Eating the Last of America’s—and 20. Levinson, Marc, “U.S. Manufacturing in International the World’s—traditional Manufacturing Jobs,” Quartz, 15 Feb. 2013, Perspective,” Congressional Research Service, February 20, 2014. . 21. Boroush, Mark, NSF Releases New Statistics on Business 7. Profactor, GmbH, “LOCOBOT Project Information,” 2014, Innovation, National Science Foundation, Directorate for Social, . Behavioral, and Economic Sciences InfoBrief NSF 11-300, October 2010. 8. Lean refers to the idea of maximizing customer value while minimizing waste or the resources required to deliver that value. Lean 22. Ibid. Enterprise Institute, “What is Lean?” . 23. US Census Bureau, US Bureau of Economic Analysis, “U.S. 9. A.T. Kearney, “Silicon Valley Thought Leader Series, Internet of International Trade in Goods and Services, December 2014,” Things 2020: A Glimpse into the Future,” . Release/2014pr/12/ft900.pdf>.

10. BI Intelligence, . 24. Pisano, Gary P. and Willy C. Shih, “Restoring American Competitiveness,” Harvard Business Review, July 2009. 11. Nosbuch, Keith D. and John A. Bernaden, “The Multiplier Effect,” Manufacturing Executive Leadership Journal, March 2012, 25. Yamaner, Michael, “Federal Funding for Basic Research at . Science Foundation, National Center for Science and Engineering Statistics InfoBrief NSF 14-318, September 2014. 12. US Bureau of Labor Statistics, Quarterly Census of Employment and Wages. Texas followed California with 887,901 production jobs 26. “Governor Cuomo Announces New York State to Build making up 9.1 percent. High-Tech Manufacturing Complex in Buffalo,” Governor’s Press Office, November 21, 2013. . Startups Jumps 83% in 2015,” March 3, 2016, . 27. Philips, Matthew, “Welders, America Needs You,” Bloomberg Businessweek, March 20, 2014.

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28. Shih, Willy C., “What It Takes to Reshore Manufacturing 40. Dizikes, Peter, “Standing up for Manufacturing,” MIT Technology Successfully,” MIT Sloan Management Review. August 7, 2014. Review, January/February 2012, . 29. Rothwell, Jonathan, “The Hidden STEM Economy,” The Brookings Institution, June 10, 2013. Of the $4.3 billion spent by the 41. Rappa, John, “State Angel Investor Tax Credit Programs,” federal government on STEM education in 2012, most of the funding Connecticut General Assembly, September 29, 2010, . education. The remaining one-third boosts K–12 teacher quality, engages children, educates the general public, evaluates STEM- 42. Wong, Perry and Kevin Klowden, “The Cost of Doing Business education efforts, and expands institutional capacity. Puts State at a Disadvantage,” Sacramento Bee, July 19, 2009.

30. “Chancellor’s Office Report on the Career Technical Education 43. “The Cost of Doing Business in California,” California Foundation Pathways Initiative,” California Community Colleges Chancellor’s for Commerce & Education, prepared by Andrew Chang & Company, Office, August 2013, . pdf>. 44. Healey, Jon, “Kinkisharyo and IBEW win; CEQA loses?” Los 31. Fuhrmans, Vanessa, “Germany’s New Export to the U.S. Is Jobs Angeles Times, November 25, 2014, . 32. Westervelt, Eric, “The Secret to Germany’s Low Youth Unemployment,” National Public Radio, Morning Edition, 45. US Department of Labor, Bureau of Labor Statistics, “Employer April 4, 2012. Costs for Employee Compensation—September 2014,” News Release, December 10, 2014. 33. Berliner, Uri, “In South Carolina, A Program That Makes Apprenticeships Work,” National Public Radio, November 46. Dotter, Jay and Mike Manley, “2014 Oregon Workers’ 6, 2014. . of Consumer and Business Services, October 2014.

34. A similar grant program, called the California Career Pathways 47. Goldberg, Stephanie, “Frequency of workers comp indemnity Trust, which had been in existence for the previous two fiscal years, claims in California continues to rise,” Business Insurance, January 16, did not require a dollar match to qualify for funding. 2015, . 35. Andes, Scott and Mark Muro, “R&D Tax Credit Crucial for Regional Economics,” The Brookings Institution, October 1, 2014. 48. Workers’ Compensation Insurance Rating Bureau of California, “Senate Bill No. 863 WCIRB Cost Monitoring Report—2014 36. Rao, Nirupama, “Do Tax Credits Stimulate R&D Spending? The Retrospective Evaluation,” November 14, 2014, .

37. Hagerty, James R., “Industry Seeks Tax Fix,” The Wall Street 49. U.S. Census Bureau, “FT920: U.S. Merchandise Trade, December Journal, August 28, 2012, Print. 2013,” . 2008, 2010-2014,” June 11, 2014, . 50. San Diego Workforce Partnership, “Advanced Manufacturing: Labor Market Analysis, San Diego County,” October 2014, . pwcmoneytree.com>.

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